- The US manufacturing PMI showed a surge in domestic demand.
- US job vacancies increased slightly in February as the labor market remained tight.
- There are fears of a possible intervention to support the yen.
Peering into the USD/JPY forecast reveals promising upside prospects as the dollar holds near a four-month peak, weighing on the yen. However, fears of a possible Japanese intervention kept the USD/JPY pair from rising too much.
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The dollar rallied this week after the US released better-than-expected economic data. The manufacturing PMI, out on Monday, showed a surge in domestic demand that led to an expansion in March. Meanwhile, US job vacancies increased slightly in February as the labor market remained tight. These reports highlighted the robust economy that has caused investors to scale back rate-cut expectations. The next big report will come on Friday and show the state of employment in the economy. A bigger-than-expected figure could further reduce rate-cut bets, boosting the dollar.
Meanwhile, there was caution in the market amid fears of a possible intervention to support the yen. Consequently, this has created a strong barrier at $152. However, analysts believe any intervention will only cause a temporary decline in the USD/JPY pair. Notably, fundamentals support a weak yen as the yield gap between the US and Japan remains wide. Moreover, the Bank of Japan is not hurrying to raise interest rates, keeping this gap wide. Therefore, the yen will only strengthen significantly if there is a shift in the BoJ’s policy outlook. A more aggressive rate-hike cycle would strengthen the yen more than a one-time intervention.
USD/JPY key events today
- US private employment change
- US ISM services PMI
- Fed Chair Powell speaks
USD/JPY technical forecast: Thin trading precedes a strong move
On the technical side, the USD/JPY price trades slightly above the 30-SMA, showing bulls are in the lead. At the same time, the RSI is above 50, favoring bullish momentum. However, the price has remained in a tight sideways move near the SMA, showing indecision. Moreover, it has made small-bodied candles, indicating that neither bears nor bulls are ready to commit to big moves.
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The price will only start trending when there is a big push above the 152.00 level or below the 30-SMA. Notably, the bearish RSI divergence and the bearish engulfing candle support a bearish breakout. If this happens, the price will likely fall to the 150.00 support level.
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Saqib Iqbal
