USD/JPY Forecast: The Middle East, the Fed, and US Retail Sales in Focus

Highlights

• The USD/JPY slipped by 0.03% on Monday, ending the session at 149.507.
• News updates on the Middle East conflict remain the focal point on Tuesday.
• US retail sales and Fed speeches also warrant consideration.

Monday Overview of USD/JPY Movements

On Monday, the USD/JPY slipped by 0.03%. Following a 0.17% loss from Friday, the USD/JPY ended the day at 149.507. The USD/JPY fell to a low of 149.300 before rising to a Monday session high of 149.762.

News Updates on the Middle East Conflict in Focus

The Middle East conflict remains the market focal point on Tuesday. Hopes of diplomatic efforts to contain the conflict subdued demand for the safety of the Yen on Monday.

However, the threat of a regional and more prolonged Middle East conflict would fuel the appetite for the Yen. This morning, Reuters reported comments from Iran, which could support a light to safety. Iran’s involvement in the conflict could be the worst-case scenario for the markets and risk sentiment.

While the focus remains on the Middle East conflict. The Bank of Japan remains a hotly debated topic. Inflation numbers from Japan may spark speculation of a move away from interest negative rates. Bank of Japan commentary on monetary policy will warrant consideration.

There are no economic indicators from Japan to influence investor sentiment toward Bank of Japan policy goals on Tuesday.

Retail Sales and Fed Speakers in the Spotlight

US retail sales will be in focus on Tuesday. A pickup in consumer spending would support a more hawkish Fed interest rate path and fuel bets on a Fed rate hike. Economists forecast retail sales to increase by 0.3% in September compared with +0.6% in August.

An upward trend in consumer spending fuels demand-driven inflation, forcing the Fed to hike rates. Higher interest rates impact borrowing costs and disposable income, leading to a pullback in consumption.

Beyond the numbers, Fed commentary also needs consideration. FOMC members John Williams, Michelle Bowman, and Thomas Barkin are on the economic calendar to speak. Hawkish comments would drive buyer appetite for the US dollar.

Short-term Forecast

Near-term USD/JPY trends hinge on news updates from the Middle East. An escalation in the conflict would support the investor appetite for the Japanese Yen. On the other hand, containment of the conflict and hawkish Fed chatter could return the USD/JPY to 150.

USD/JPY Price Action

Daily Chart

The USD/JPY sat above the 50-day and 200-day EMAs, affirming bullish price signals. A USD/JPY move to 150 would give the bulls a run at the 150.293 resistance level.

A pickup in US retail sales and hawkish Fed comments would drive demand for the US dollar.

However, an unexpected fall in US retail sales and dovish Fed commentary would pressure the USD/JPY. A fall through the 148.405 support level would support a move toward the 50-day EMA. An escalation in the Middle East conflict would support demand for the Yen.

The 14-day RSI at 59.55 supports a USD/JPY move through the 150.293 resistance level before entering overbought territory.

4-Hourly Chart

The USD/JPY remains above the 50-day and 200-day EMAs, reaffirming bullish price signals. A return to 150 would support a break above the 150.293 resistance level.

However, a break below the 50-day EMA would give the bears a run at the 148.405 support level.

The 57.28 14-4 Hourly RSI supports a USD/JPY move through the 150.293 resistance level before entering overbought territory.