USD/JPY Forecast: News from Fed Speakers May Sway Yen; But Middle East Remains Key

Highlights

• USD/JPY saw a 0.49% dip on Monday, undoing Friday’s gains and ending at 148.496.
• While August’s Japanese economic indicators emerge, news from the Middle East remains a focal point.
• With Fed rate hike discussions cooling, the spotlight remains fixed on the US Federal Reserve’s statements.

Monday Overview of USD/JPY Movements

On Monday, the USD/JPY declined by 0.49%, reversing a 0.49% gain from Friday to end the day at 148.496. The USD/JPY rose to a high of 149.240 before falling to a low of 148.433.

Monetary Policy and the Middle East in Focus

Following an overnight shift in forward guidance from the Fed, investors must monitor Bank of Japan (BOJ) commentary. BoJ Governor Kazuo Ueda and board members have outlined the requirements for a move away from negative rates.

A deteriorating macroeconomic backdrop and the Middle East conflict may force the BoJ to change tack. A more dovish BoJ monetary policy outlook would usually pressure the Japanese Yen. However, the Middle East conflict and the threat of regional destabilization will likely overshadow the effects of BoJ forward guidance.

News updates from Middle East will likely influence demand for the Yen as a safe haven asset.

Economic indicators from Japan, including current account figures for August, are unlikely to influence sentiment toward the USD/JPY. However,  the IMF World Economic Outlook Report need consideration. The Report will likely identify macroeconomic divergencies that may influence the USD/JPY pair.

Fed Speakers Remain in Focus as Fed Rate Hike Talk Abates

The US Federal Reserve will remain in the spotlight today. FOMC members Raphael Bostic, Mary Daly, Neel Kashkari, and Christopher Waller are on the economic calendar to speak today.

Investors will likely react if FOMC members support the end of the rate hike cycle. On Monday, FOMC voting members Lorie Logan and Philip Jefferson eased the threat of a Fed rate hike.

More of the same would weigh on buyer demand for the US dollar. Voting members Neel Kashkari and Christopher Waller will likely have more influence on investors.

Short-term Forecast

Near-term trends for the USD/JPY hinge on US inflation numbers and the Middle East conflict. A hotter-than-expected US CPI report and a de-escalation in the Middle East would likely see the USD/JPY retarget 150.

USD/JPY Price Action

Daily Chart

The USD/JPY remained above the 50-day and 200-day EMAs, sending bullish price signals. A break above 149.500 would give the bulls a run at the 150.293 resistance level.

Easing tensions in the Middle East and hawkish Fed commentary would likely drive buyer appetite for the USD/JPY.

However, an escalation in geopolitical tensions and dovish Fed comments would support a break below the 148.405 support level. A fall below the support level would bring the 50-day EMA and 146.649 support level into view.

Buying pressure may intensify at the 146.649 support level. The 50-day EMA is confluence with the support level.

The 14-day RSI at 53.07 supports a USD/JPY move to 150 before entering overbought territory.

4-Hourly Chart

The USD/JPY sits below the 50-day EMA while holding above the 200-day EMA, sending bearish near-term but bullish longer-term price signals. A break above the 50-day EMA would support a USD/JPY move toward the 150.293 resistance level.

However, a fall below the 148.405 support level would bring the 200-day EMA into play.

The 38.02 14-4 Hourly RSI suggests a USD/JPY fall to the 200-day EMA before entering oversold territory.