USD/JPY poised for upside ahead of FOMC

The long-term outlook on USD/JPY remains bullish, so the recent pullback presents an attractive window to buy on the dips.

Japanese Yen
Source: Bloomberg

A range of macroevents and data this week could spark the pair’s climb. The key event that will potentially be the biggest mover is the last Federal Open Market Committee (FOMC) meeting for the year (Thursday 3am Singapore time).

Speculation is high that the FOMC will change its constantly used phrase of ‘considerable time’ in describing how long it will keep interest rates low. Any hawkish cues will likely be a huge lift for USD/JPY pair.

There are certainly more fundamentals to support the hawkish view. Last night, the US industrial production numbers showed a print of 1.3%, better than the consensus forecast of 0.7% and the previous reading of 0.1%.

Recent figures showing an improved outlook for personal consumption and relatively steady job data will also lend support for an earlier rate hike.

Another factor driving the USD/JPY pair higher is the weakness in the Japanese currency, especially coming off the weekend’s landslide election, won by Prime Minister Shinzo Abe’s party as a mandate for ‘Abenomics’.

Japanese macrodata this week could also put more pressure on the yen, if they come in disappointing.  Tomorrow’s trade balance data (7.50am Singapore Time) is expected to show the trade deficit widen from 710 billion yen to 992 billion yen, dragged down by lower exports.

On a four-hour chart, USD/JPY looks to be testing its support at around 117.24 points, after pulling back from 121.91 points last week.  The 119.00 point level will be the next ceiling to watch out for.

Click to enlarge

IGA, may distribute information/research produced by its respective foreign marketing partners within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

This information/research prepared by IGA or IGA Group is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. In addition to the disclaimer above, the information does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. Any views and opinions expressed may be changed without an update.

See important Research Disclaimer.