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USD/JPY Outlook: Volatility Risks Ahead
Markets face another potentially volatile week as markets weigh US-Japan trade negotiations, key economic indicators, and BoJ policy clues:
- Bullish Yen Scenario: Upbeat PMI data, higher inflation, a hawkish BoJ stance, and an escalation in the global trade war could drag USD/JPY below 140.
- Yen Carry Trade Unwind Risks: A USD/JPY drop below the September 2024 low of 139.576 could accelerate the Yen Carry Trade Unwind.
- Bearish Yen Scenario: Weaker PMI data, softer inflation, a dovish BoJ, and a de-escalation in the global trade war may send the pair above last week’s high of 144.108 toward 145.
US Indicators in Focus
Beyond tariff developments, US data and Fed commentary will also be influential. Key releases this week include:
- Private Sector PMIs (April 23).
- US Initial Jobless Claims (April 24).
- Michigan Consumer Sentiment (April 25).
- Fed Speakers.
Economists forecast the S&P Global Services PMI to drop from 54.4 in March to 52 in April. Since services account for around 80% of the US GDP, a sharper fall toward 50 may trigger recession worries and weaken the US dollar. Economists expect the Manufacturing PMI to drop below the neutral 50 level, potentially spurring further US dollar selling.
Economists expect initial jobless claims to rise from 215k (week ending April 12) to 218k (week ending April 19).
A spike above 250k could add to recession concerns, supporting a more dovish Fed rate path. Alternatively, upbeat labor data could allow the Fed to delay rate cuts.
The final University of Michigan Survey of Consumers will also require consideration. Upward revisions to inflation expectations and a downward adjustment to consumer sentiment could impact US dollar demand.
Beyond the data, FOMC members’ commentary could guide traders on the Fed’s views on tariffs, inflation, and the policy outlook.
Potential Price Scenarios:
- Bullish US Dollar Scenario: Easing trade tensions, positive PMI data, lower jobless claims, or hawkish Fed rhetoric could drive USD/JPY toward 145.
- Bearish US Dollar Scenario: An escalating trade war, weaker-than-expected US economic indicators, or dovish Fed chatter may drag USD/JPY below 140.
Short-term Forecast:
USD/JPY trends this week will hinge on:
- Trade developments.
- Japan’s private sector PMIs and inflation data.
- US private sector PMIs, jobless claims, and Michigan data.
- Central bank forward guidance.
USD/JPY Price Action
Daily Chart
On the daily chart, the USD/JPY remains below its 50-day and 200-day EMAs, indicating prevailing bearish momentum.
A break above 143 could open the door to a move toward 145. A decisive move above 145 may enable the bulls to target the 50-day EMA and potentially the 149.358 resistance level.
On the downside, a drop below last week’s low of 141.608 exposes the September 2024 low of 139.576.
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