USD/JPY forecast undermined by risk aversion

The USD/JPY eased lower as US stock markets wobbled. Technology sector took a hit thanks to sharp falls in Nvidia, AMD and ASML. While trade tensions flared up again, sentiment was not significantly bearish thanks to news, courtesy of Bloomberg, that China may be open to fresh talks — provided President Trump reins in his more hawkish aides and shows respect. It remains to be seen whether talks between the two sides will start soon and whether a trade agreement will be struck. In any case, trade negotiations could take a long time and face a bumpy road. Indeed, with gold breaking out to new all-time highs above $3300, demand for haven assets remained elevated. As well as the yen, the Swiss franc was also showing relative strength in the FX space. Against this backdrop, the underlying USD/JPY forecast remains bearish, and we wouldn’t rule out a potential drop to 140.00 in the coming days.

Trade fog clouds investor outlook ahead of Powell speech

Traders hardly paid any attention to today’s forecast-beating US retail sales data. This is because trade war uncertainty is dominating investor sentiment. Indeed, it is Trump’s on-again-off-again tariff policy that is rattling investors and traders alike. A fresh probe into critical mineral imports added to the uncertainty, leaving investors struggling to position amid such policy whiplash. Let’s see if Powell, who will be speaking later at 18:30 BST, will be able to lift sentiment. The USD/JPY forecast could take another bearish hit should the Fed chair raise the prospects of a sooner-than-expected rate cut.

Technical USD/JPY forecast: Eyes on 140

Technically speaking, the USD/JPY forecast is looking bearish for now. The pair looks poised to slip below the 142.00 support level, with price action continuing to remain heavy. Should that level give way, there’s every chance it could then push down to 140.00, with September’s low of 139.58 lurking just beneath.

Source: TradingView.com

In terms of resistance levels to watch, 142.60-143.00 area is now the first hurdle, with the lower end of this range marking yesterday’s low. Above this zone, the next obvious resistance comes in at 144.50, which provided a temporary floor last week, before turning into resistance. Further resistance is seen around 146.50.

For any sort of a bullish shift in the USD/JPY forecast, we’d need to see a convincing reversal candle on the daily chart — and, more importantly, some follow-through. That last part has been sorely lacking.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R

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