USD/JPY, EUR/JPY FORECAST:

• Japanese Yen Pairs Catch Their Breath Ahead of Potential Bullish Continuation.
• FED Minutes Leaned on the Hawkish Side Despite Concerns Around Over-tightening.
• IG Client Sentiment Shows Retail Traders Extremely Bearish on Both USD/JPY and EUR/JPY.

The Yen has held firm this morning against the Euro and the Greenback as USD/JPY reaches overbought territory. A possible retracement lies ahead but will it be another shallow pullback before bulls seize control once more? It appears so with no change from the BoJ and a hawkish tone from the Fed Minutes release USD/JPY looks to be in for an interesting end to the week.

FED MINUTES AND CHINA’S WOES SOUR SENTIMENT

The Federal Reserve minutes release yesterday provided mixed messaging but leaned on the hawkish side. The minutes revealed that Fed policymakers still see the need for higher rates but share concerns about over-tightening with no recession forecast for 2023. The Fed also acknowledged tighter credit conditions and concerns around the commercial real estate market with declining values in the sector affecting Banks.

The situation around China continues to dampen sentiment as the Yuan slipped towards its 2007 lows. This prompted a response from Chinese Authorities as they look to instill a sense of calm with a stronger than expected reference rate for the Yuan and the largest injection of cash into the financial system since February. As uncertainty continues, we heard the US treasury issue a warning as well about the potential impacts of the situation in China. A continuation of this theme would likely result in further US Dollar strength as safe haven flows continue which could push USD/JPY toward the coveted 150.00 psychological level once more.

JAPANESE DATA AND THE DAY AHEAD

In the Asian session we did have some positive data for the Yen as imports and exports both came in above forecasts, but machinery orders and the balance of trade figure came in lower than expected.

On the data front today it is a relatively quiet one with some medium impact US data expected in the form of jobless claims and the Philadelphia Manufacturing Index. Neither of these events are expected to have a significant impact on the US Dollar.

TECHNICAL OUTLOOK AND FINAL THOUGHTS

USDJPY is on a tear at the minute and as discussed in my piece on Tuesday has run into resistance at the 146.50 handle. Price has since stalled and dropped back toward the 146.00 handle with support now at the 145.00 before a retest of the descending trendline becomes a possibility. The RSI (14) has also reached overbought territory which is a positive sign for a potential pullback. The question however is, will it be a deep pullback or more of a consolidation phase before the next leg to the upside?

As I have mentioned over the past couple of weeks, FX intervention from Japanese authorities remains a possibility. The issue is there is no warning or sign as to when this may occur with Japanese authorities saying one thing but doing the complete opposite of late. Barring intervention, I honestly don’t see any other reason to expect a significant push to the downside with any push lower likely to provide bulls with another opportunity to join the trend.

USD/JPY Daily Chart – August 17, 2023

Source: TradingView

EURJPY

EURJPY hasn’t changed much since my Tuesday outlook remaining around the 159.00 handle. So far attempts to break higher toward the key psychological 160.00 mark. Looking beyond the 160.00 handle and there isn’t much in terms of significant resistance holding the pair back from testing multi-year highs around the 170.00. Similar to USDJPY however, I do expect the Japanese authorities to intervene should we see an aggressive move above the 160.00 handle.

EUR/JPY Daily Chart – August 17, 2023

https://www.dailyfx.com/news/forex-usd-jpy-eur-jpy-update-a-temporary-pause-before-bullish-continuation-20230817.html