USD/JPY Forex Signal: Sits and Waits for a Busy Week

The USD./JPY reacted mildly to last Friday’s American personal consumption expenditure (PCE) data. 

Bearish view

  • Sell the USD/JPY pair and set a take-profit at 127.50.
  • Add a stop-loss at 131.10.
  • Timeline: 1-2 days.

Bullish outlook

  • Buy the USD/JPY pair and set a take-profit at 131.50.
  • Add a stop-loss at 128.50.

The USD/JPY price remained in a consolidation phase in the past few days ahead of the upcoming Federal Reserve interest rate decision. It was trading at 129.87, where it has been recently after the strong Tokyo inflation number. This price is about 2.12% above the current level.

US consumer confidence, Japan jobs data

The USD./JPY reacted mildly to last Friday’s American personal consumption expenditure (PCE) data. According to the statistics agency, the PCE dropped to 4.4% in December after falling to 4.7% in the previous month.

Core PCE, which is the Fed’s favorite inflation gauge, increased by 0.3% in December. At the same time, consumer spending declined modestly, meaning that the economy is slowing. A day earlier GDP data showed that the economy slowed to 2.9% in Q4 after expanding by 3.2% in Q3.

The Fed will pay closer attention to these numbers when it starts its first meeting of the year on Tuesday. Economists believe that the bank will continue with its hawkish talk as it hikes rates by 0.50% for two straight meetings.

The goal of hawkish language will be to lower investors’ enthusiasm, which is reflected in the performance of the stock and crypto market. Bitcoin has moved above $20,000 while the Dow Jones and Nasdaq 100 are all positive for the year. The pair will also react to the upcoming American consumer confidence numbers.

The USD/JPY price is also reacting to the Japanese economic numbers. On Friday, data revealed that Tokyo's inflation neared its highest level in 42 years. The figure, which is a leading indicator for national inflation, rose to 4.3% in January, putting pressure on the Bank of Japan. In its January meeting, the bank resisted pressure to adjust its yield curve policy. The country’s statistics agency will publish the latest retail sales, jobs, and industrial production data on Tuesday.

USD/JPY forecast

The USD/JPY price has been in an overall bearish trend in the past few months. As it dropped, the pair formed a descending channel pattern that is shown in red. It is now a few points below the upper side of the channel.

The price is also slightly below the important resistance point at 130.46, the lowest level on December 20. It also coincided with the lowest point on January 3. Therefore, the pair will likely continue falling as sellers target the lower side of the channel, at about 127.16.

USD/JPY

Crispus Nyaga
Crispus Nyaga is a financial analyst, coach, and trader with more than 8 years in the industry. He has worked for leading companies like ATFX, easyMarkets, and OctaFx. Further, he has published widely in platforms like SeekingAlpha, Investing Cube, Capital.com, and Invezz. In his free time, he likes watching golf and spending time with his wife and child.