Bearish view
- Sell the USD/JPY pair and set a take-profit at 126.50.
- Add a stop-loss at 130.
- Timeline: 1-2 days.
Bullish view
- Set a buy-stop at 129.22 and a take-profit at 130.50.
- Add a stop-loss at 128.
The USD/JPY forex price rose slightly on Monday and Tuesday morning as investors focused on the upcoming economic data from the United States and Japan. The market is also focusing on the closely-watched interest rate decision by the Bank of Japan (BoJ). It was trading at 128.80, which was a few points above the lowest point this month.
BoJ and economic data
The USD/JPY price drifted upwards ahead of an eventful week. American markets will reopen on Tuesday after being closed on Monday for Martin Luther King’s day. There will be no economic data from the US and Japan on Tuesday. Instead, investors will focus on corporate earnings from companies like Morgan Stanley, JP Morgan, Interactive Brokers, and Charles Schwab among others.
The other important catalysts for the pair will be the upcoming economic data from Japan and the US. Japan’s statistics agency will publish the latest machinery order numbers on Wednesday. Economics expects that machinery orders dropped by about 0.9% on an MoM basis and rose by 2.4% on a YoY basis. It will also publish the latest industrial production numbers.
The most important catalyst for the pair will be the interest rate decision by the BoJ. After spending decades as the most dovish bank in the developed world, there are signs that the bank is changing its tune. In December, officials changed their language on its yield curve control program. As such, it could continue with this tightening since inflation is still high.
The USD/JPY exchange rate will also react to the latest numbers from the United States that are scheduled for Wednesday. The Bureau of Labor Statistics (BLS) will publish the latest producer price index (PPI) data. Like the CPI, analysts believe that producer prices pulled back by 0.1% in December. The US will also publish the latest retail sales numbers.
USD/JPY forecast
The 4H chart shows that the USD to JPY exchange rate has been in a bearish trend in the past few weeks. It has formed a descending channel shown in black. The pair has also dropped below the 25-day and 50-day moving averages. It has also moved between the middle and lower lines of the Bollinger Bands while the Relative Strength Index (RSI) has moved above the oversold level.
Therefore, the pair will likely resume the bearish trend as sellers target the lower side of the descending channel at 125.75.
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