USD/JPY Weekly Forecast: The Middle East, Central Banks, and the Stats

Weekly Overview of the USD/JPY in the Week Ending April 12, 2024

The USD/JPY advanced by 1.06% in the week ending April 12, closing the week at 153.210. The USD/JPY fell to a Monday low of 151.545 before rallying to a Friday high of 153.384.

USD/JPY Analysis: The Middle East, The Bank of Japan, and the Numbers

On Monday, investors will react to the news of Iran escalating the conflict in the Middle East. Moreover, a flight to safety will likely drive buyer demand for the US dollar and the Japanese Yen. However, investors may favor the Japanese Yen, pressuring the USD/JPY pairing.

Investors should monitor the ripple effects across the financial markets and central bank responses. Supply chain disruption and crude oil price trends need consideration.

Nevertheless, economic indicators require investor attention throughout the week.

Machinery Orders from Japan will provide investors with a view of the macroeconomic environment mid-way through Q1.

Economists forecast machine orders to decline by 8.0% year-on-year in February. Machine orders decreased by 10.9% year-on-year in January. Wages, the services sector, and household spending remain focal points for the BoJ. Nevertheless, a deteriorating macroeconomic environment could affect the Bank of Japan interest rate trajectory.

On Wednesday, trade data from Japan will garner investor interest. A narrower trade deficit on higher exports and upward import trends would signal improving global trade terms.

Economists forecast the trade deficit to fall from ¥379.4 billion to ¥280.0 billion in March.

Inflation figures will influence the Bank of Japan rate path on Friday. Service sector-driven inflationary pressures could give the Bank of Japan reasons to discuss the timing of an interest rate hike.

Economists forecast the annual inflation rate to remain steady at 2.8% in March. Moreover, economists expect core inflation to ease from 2.8% to 2.7%.

US Economic Calendar: Manufacturing, Retail Sales, and the Fed

On Monday, the NY Empire State Manufacturing Index and retail sales figures warrant investor attention. The US retail sales figures will impact the USD/JPY more. Upward trends in consumer spending could fuel demand-driven inflation and delay the timing of a Fed rate cut. A higher-for-longer Fed rate path could reduce disposable income, impacting consumer spending.

Economists forecast retail sales to increase by 0.3% in March after rising by 0.6% in February.

The housing sector will be in the spotlight on Tuesday. Economists view the housing market as a leading indicator of the US economy. Deteriorating housing market conditions could impact consumer confidence and spending. Significantly, deteriorating housing market conditions could ease inflationary pressures in housing services, a focal point for the Fed.

Economists forecast building permits to fall by 0.7% in March after rising by 2.4% in January. Additionally, economists expect housing starts to decline by 0.8% after tumbling 10.4% in February.

On Thursday, initial jobless claims and the Philly Fed Manufacturing Index will be in focus. A spike in jobless claims could refuel investor bets on a June fed rate cut. Weaker labor market conditions could impact wage growth, reducing disposable income. Economists forecast initial jobless claims to increase from 211k to 212k in the week ending April 13.

However, Philly Fed Manufacturing Index trends also need consideration. Investors may react to early cracks in the US economy amidst expectations of the US avoiding a recession.

Beyond the numbers, investors should monitor FOMC member speeches.

Fed Chair Powell is on the calendar to speak on Tuesday. However, FOMC members Austan Goolsbee (Fri), Loretta Mester (Wed), Mary Daly (Mon), Michelle Bowman (Wed), and Raphael Bostic (Thurs) will also deliver speeches.

Short-term Forecast

Near-term USD/JPY trends will hinge on news updates from the Middle East and central bank commentary. A flight to safety would likely impact buyer demand for the USD/JPY, with investors favoring the Japanese over the US dollar.

USD/JPY Price Action

Daily Chart

The USD/JPY sat well above the 50-day and 200-day EMAs, affirming the bullish price signals.

A USD/JPY breakout from the April 12 high of 153.384 would give the bulls a run at the 154 handle.

News from the Middle East and central bank commentary warrant investor attention.

However, a fall through the 152.500 handle could bring the 50-day EMA into play. A drop below the 50-day EMA would give the bears a run at the 148.529 support level.

The 14-day RSI at 72.50 shows the USD/JPY in overbought territory. Selling pressure could intensify at 153.384.