DailyFX Table


USD/JPY appears to be regaining its footing ahead of the 3Q U.S. Gross Domestic Product (GDP) report, with U.S. Treasury Yields highlighting a similar dynamic, but failure to test the July-high (114.50) raises the risk for a near-term correction as the exchange rate preserves the broad range from earlier this year.

A marked slowdown in the growth rate may undermine the near-term rebound in USD/JPY as it drags on interest-rate expectations, but market participants may pay increased attention to the core Personal Consumption Expenditure (PCE), the Fed’s preferred gauge for inflation, as the figure is anticipated to increase to an annualized 1.3% from 0.9% in the second-quarter.

Signs of heightening price pressures may spur a bullish reaction in the greenback as it encourages the Federal Open Market Committee (FOMC) to further normalize monetary policy over the coming months, and Chair Janet Yellen and Co. may adopt a more hawkish tone at the next rate decision on November 1 as ‘participants cautioned that an unduly slow pace in removing policy accommodation could result in an overshoot of the Committee’s inflation objective in the medium term.’

At the same time, a batch of dismal developments may tame the recent advance in USD/JPY as it dampens the Fed’s scope to implement higher borrowing-costs, and a growing number of FOMC officials may forecast a more shallow path for the benchmark interest rate as the central bank struggles to achieve the 2% target for price growth.

USD/JPY Daily Chart

USD/JPY Daily Chart

  • String of failed attempts to test the July-high (114.50) undermines the near-term advance in USD/JPY, with the broader outlook capped by the Fibonacci overlap around 113.80 (23.6% expansion) to 114.30 (23.6% retracement).
  • Keeping a close eye on the Relative Strength Index (RSI) as the oscillator appears to be flat lining ahead of overbought territory.
  • First downside hurdle comes in around 112.30 (61.8% retracement) to 112.80 (38.2% expansion) followed by the key pivot around 111.10 (61.8% expansion) to 111.30 (50% retracement).
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