USDJPY could attract a lot of attention from traders in the coming week with US FOMC and the Bank of Japan announcing interest rate decisions and making monetary policy
statements both of which have the potential to drive significant action in the pair this week. In addition to this, capital flows in an out of defensive havens ahead of big events later in the month including the Brexit referendum and Spanish election could also influence trading in JPY pairs.
From December through April, USDJPY was in a clear downtrend of lower highs and lower lows but over the last six weeks, the pair has stabilized. A hammer candle, successful test of 105.00 support and a positive RSI divergence in early May all suggested that the downtrend had reached its limits. Since then, USDJPY has been base building, staging an initial rebound and following a correction, finding support near 106.00 to complete a double bottom.
Higher lows in the RSI suggest downward pressure continues to fade. The pair is currently trading in a wide channel between 106.00 and 112.00 with initial resisance possible near 108.00, the 50-day moving average near 109.05 then the 110.00 to 110.60 zone which contains a round number and Fibonacci cluster. Downside support appears possible in the 105.00 to 105.30 area.
Several forces and events could combine to drive moves in USDJPY in the coming week.
While the FOMC is not expected to raise interest rates in June any longer, the jury is still out on July. The Fed could use its statement, member projections or Chair Yellen’s press conference to signal whether it is open to raising interest rates in July or not. A hawkish signal could boost USD while a dovish signal could weaken USD.
The Bank of Japan meeting could influence this pair from the JPY side. Japan’s government and central bank had been avoiding making any moves through the spring ahead of the G-7 meeting to avoid disputes over currency levels. With the summit meeting now over, the government having announced a delay to the planned sales tax increase and with the central bank now having had several months to assess the impact of negative interest rates, traders may look to the Bank of Japan for a signal on what it needs or is planning to do next.
Finally, JPY pairs and gold may be active through the rest of this month on capital flows in and out of defensive havens. In addition to this week’s central bank meetings, the Brexit referendum plus elections in Spain and Australia are big events that could move markets, spark significant volatility and create trading opportunites.
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