The USD/JPY exchange rate may take signals mostly from high-level US data scheduled for release later in the week. The advanced GDP report will be released, along with the core PCE price index. During yesterday's trading, the USD/JPY pair failed to breach the top of the resistance 131.11 and settled down around the support level 130.28 at the time of writing the analysis.
Analysts expect growth of 2.7% in the fourth quarter of 2022, slower than the previous growth of 3.2%. Meanwhile, the Fed's preferred measure of inflation is expected to rise from 0.2% to 0.3% in December.
The stronger-than-expected results may revive hopes for more aggressive tightening moves by the US Federal Reserve, which could lead to higher demand for the dollar. On the other hand, weak data could dampen hopes of a US rate hike or even keep investors wary of a recession later in the year. Flash PMI figures due later in the day may also influence the direction of the USDJPY, although mixed results are expected.
Technical forecasts for the dollar pair against the yen:
- The USD/JPY is heading lower inside a descending channel which can be seen on the 4 hour chart.
- It appears that another test of the channel top is underway, as the pair recently bounced off the support level.
- The price is testing the 50% level near the middle of the channel of importance, but the higher pullback could reach 61.8% Fibonacci near the top of the channel.
- This is also near the 200 SMA dynamic resistance and 132.00 a key psychological mark.
So far, the 100 SMA is below the 200 SMA to confirm that the general trend is still bearish, and selling is more likely to rally than to reverse. The price is also finding a hurdle at the 100 SMA. Stochastic is already in the overbought area to indicate exhaustion among buyers, so a shift lower would mean a return in selling pressure. The RSI is also starting to point lower without reaching the overbought territory, so sellers may be keen to take over.
In this case, USD/JPY may soon return to the swing low near the key psychological level of 127.00.
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