USD/JPY: outlook for May 8-12

USD/JPY: outlook for May 8-12

USD/JPY has managed to strengthen to 112.50 during the past week. The pair traded in the situation of low liquidity as Japanese banks were on holidays from Wednesday to Friday. The US dollar gained as the possibility of the Federal Reserve’s June rate hike increased.

On Friday, there was some positive news for the yen. The Bank of Japan Governor Haruhiko Kuroda sounded rather optimistic. He voiced confidence that the country’s inflation rate will accelerate toward his 2% target as robust economic growth pushes up wages and helps heighten inflation expectations.

Still, as far as we can judge, despite the fact that Japan’s economy showed some signs of life, inflation remains extremely low. The BOJ will surely have to continue its extremely loose monetary policy. This will limit the yen’s strength and provide support to USD/JPY. At the same time, a sharp decline in commodity prices and concerns about global growth outlook increase demand for the yen as a safe haven.

In the coming days, there will be some Japanese releases of minor importance like average cash earnings, Bank of Japan’s Summary of opinions, current account, and Economy watchers’ sentiment. Bets for the Fed’s rate hike should be the main driver of USD/JPY.

Technically the pair has met significant resistance at 113.00 (resistance line from January highs and 100-day MA). In addition, there’s 100-week MA at 113.35. If the Fed members sound hawkish late on Friday and we see a strong weekly close, the bulls will get a chance to continue their way up towards 115.00. Otherwise, we’ll be looking for a correction down to 111.70 (50-day MA), 110.45 (200-week MA) and 110.00. 

jpy

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