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  • USD/JPY has taken on a key support line and  is currently trading at 111.39, within a range of between 111.29 and 111.62.
  • Trading with a range  of consolidation, upcoming data will help give the  yen  some direction.

The yen  has been ascending from a low of 110.74 recent lows towards the 112 figure again  as equity markets perked up again.

Casting minds back to the start of this year, USD/JPY  rose from a 108 end-of-day low at the beginning of January (flash-crash aside) to a 2019 peak of 112, seen in early March.

In more recent trade, and as analysts at Westpac note, it was the past week’s culmination of a sharp downward revision in ECB forecasts, weak China trade data, a sell-rating on a major China insurer, and a more ambiguous US payrolls report that had the market reassessing its growth expectations:

Accordingly, the switch from a risk-on to risk-off thematic saw equity markets post their worst week for 2019, US 10 year bond yields falling as low as 2.60% and  USD/JPY  returning back to 111 – testing the bottom of a distinct trend-channel. We think the recent bearish impetus is a bit overdone.”

FOMC –    The distribution of dots will matter  which could signal policy lean

This week will be key in determining the trajectory of USD/JPY as we head into the FOMC. While the FOMC is expected  to leave the policy rate unchanged at the March meeting, traders will be looking to the dot plot for the  median projected policy rate for 2019 to reflect one more hike – The distribution of dots will matter  which could signal policy lean. Another factor to scrutinise will be the Fed’s  balance-sheet taper plan – This will be laid out in a separate document or at the press conference.

As for the BoJ, “With little change to BOJ policy amid the still ‘no-flation’ backdrop and given our expectation for a final FOMC hike in December, we see  USD/JPY  peaking at 114 in September. Thereafter, a trend back to 106 by end-2020 is forecast,” the analysts at Westpac argued.

USD/JPY levels

“USD/JPY is neutralising near term. It is possible that will have to allow for a deeper retracement to the  55 day  ma and the  2 month  uptrend at 110.08/110.13, which should hold for an upside bias to be preserved,” analysts at Commerzbank argued, adding, “But we suspect that it is trying to reassert its up move sooner. Immediate resistance is 112.23, the 6  th  December low, the 112.43 55 quarter moving average and recent high at 113.71. We have a  5 month  resistance line also at 113.08.”