The USD/JPY is moving reasonably as the week gets underway, with a relatively calm start to what will eventually be a highly hectic week.
Since early last week, the pair has been oscillating just to the north of the 113.50 level and in the vicinity of its 50-day moving average in the 113.60s.
USD/JPY CHART Source: Tradingview.com
These levels have served as a magnet for price activity for most of the previous week. Subdued trading conditions are expected to remain ahead of important events later in the week. As a result, playing the pair’s current 113.25-114.00 range may be the best course of action.
USD/JPY may test the base of this band shortly if long-term US rates continue to fall (the 10-year yield is down approximately five basis points on the day and has fallen below 1.45%).
There are two more levels of support and resistance to consider beyond these immediate levels of support and resistance: the 112.50 area to the drawback, which represents a double underside from late November through early December, and the 115.50 area to the upside, which corresponds to the November (annual) high.
This Week’s Schedule
The Federal Reserve’s fiscal policy choice on Wednesday, followed by the Bank of Japan’s decision on Friday, will be the headlines of this week’s significant events.
Also scheduled for release this week are: the November Producer Price Index (PPI), the November Retail Trade and the December NY Fed poll on Wednesday, and the weekly unemployment claims data, the November Housing Data, the November Industrial Production, and the December Philly Fed and flash Markit PMI survey data on Thursday.
Japan will witness the publication of its November Industrial Production results on Tuesday, followed by the release of its trade data on Thursday.
If we look at how the markets could respond to all of the above, the Federal Reserve meeting will be far away from the most significant driver of the foreign exchange market this week.
The data from the United States is anticipated to mostly confirm well-established storylines about the country’s economy, such as high inflation pressures paired with solid growth. However, according to the data, supply chain disruptions are still affecting output in some industries (and adding to higher prices).
In turn, this is likely to translate into a higher Dollar. At the same time, it does not appear that the Bank of Japan or Japanese statistics can do much to aid the Yen, whose fate is more likely to be dictated by broader risk sentiment and interest rate differentials than the Dollar.
For example, the widely regarded Tankan survey of significant manufacturers saw its headline index grow for the sixth consecutive quarter and reach its highest level since late 2018. However, it failed to elicit any action in the foreign exchange market.