USD/JPY: outlook for April 17-21

USD/JPY dropped to 108.90 as investors fled high-risk assets amid geopolitical tensions among North Korea and Syria. The US dollar suffered additional losses after Donald Trump said in his Wall Street Journal interview that he prefers a low-interest rate policy and that a strong dollar would ultimately hurt US economy. Overall, sharp losses for global stocks, Trump’s willingness to talk down the USD and aggravation of numerous political conflicts offered a significant boost to the yen.

Next week, geopolitical tension sparked in the Middle East and Korean peninsula will still be supportive for the yen. On April 15, traders will be keeping a closer eye on the North Korean Day of the Sun holiday as another launch of missiles is expected. This might result in additional gains for the yen on next Monday. Japan’s economic calendar is light with Bank of Japan Governor Kuroda’s speech and trade balance data coming on Thursday. The latter one should be improving after an eventful April. A great package of statistical releases will come out of the United States next week. Watch for empire state manufacturing index on Monday, building permits, housing starts, capacity utilization rate – on Tuesday and manufacturing figures – on Thursday. Another key event to focus on is the speech of Treasury Secretary Mnuchin scheduled for April 20, 8:15 pm MT time. He might touch upon the border-adjustment tax and incoming fiscal policies. Towards the end of the week, the US dollar might get a chance to recoup some of its earlier losses. Investors will realize that a weaker USD is unattainable goal for the President willing to introduce pro-growth policies. Also, we should bear in mind the fact that the Fed remains resolutely independent from the government. So, on Friday, the FOMC member Kashkari might try to convince market participants that the Fed will definitely hike if it sees additional signs of improving US economic conditions.

On the technical chart of USD/JPY, a strong support at 108.85 doesn’t allow quotes to slide lower. Its break will allow us to target 107.70 (November 15 low) and 106.50 (61.8% Fibo level traced from last year low) levels. On the upside, we see some firm resistances at 109.85, 111.10 (38.2% Fibo level) and 112.20 (March 31 high).