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April 20, 2018

FXTM, Market Outlook on Japanese Yen "USDJPY" for Q2 2018

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Yen stands to gain from trade war tensions.

This article is originally referred from FXTM Quarterly Market Forecast.

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As has been the case over the past year, catalysts behind fluctuations in the Japanese Yen are unlikely to be strongly correlated to news around the Japanese economy.

I expect the Yen to remain attractive to investors in uncertain times and will personally be keeping an eye on how the Yen reacts to the ongoing trade tensions between the U.S. and China.

I would expect the currency to gain significantly if the trade dispute between the U.S. and China heats up over Q2.

The general consensus is that a global trade war is not upon us, but any retaliation from China in response to President Trump’s ongoing negative narrative on trade will be enough to spook the markets from time to time.

The 105 level will likely be used by traders as another psychological checkpoint as the USDJPY continues to respect a negative trajectory.

While geopolitical tensions and heightened trade war fears could continue to stimulate appetite for the Yen as Q2 gets underway, a recovering U.S. Dollar has the ability to limit the Yen’s upside potential.

Sentiment towards the U.S. economy could receive a welcome boost in Q2 if core economic data repeatedly beats expectations.

Any signs of U.S. inflation rising, wage growth accelerating, and the labour market strengthening could prompt markets to reevaluate how many times the Fed will raise interest rates this year.

Speculations of higher rates are likely to support the Dollar, consequently pushing the USDJPY higher.

All in all, the direction of the USDJPY is likely to be driven by the performance of the Dollar, U.S. rate hike expectations, and the escalating U.S.-China trade dispute.

Technical Outlook on USDJPY

Focusing purely on the technical outlook, the USDJPY is firmly bearish on the daily timeframe.

There have been consistently lower lows and lower highs while the MACD currently trades to the downside.

Sustained weakness below the 107.00 resistance level could invite a decline lower towards 105.50 and 104.70, respectively.

The weekly setup suggests that the currency pair has scope for further downside, with traders closely watching how prices behave around the 105.00 level.

A decisive weekly close below 105.00 may result in a further decline towards 104.00.

Alternatively, a weekly close above the 107.00 resistance level is likely to inspire bulls to challenge 108.50.

The monthly charts illustrate how risk aversion boosted the Japanese Yen, with 107.00 acting as an important monthly resistance level.

Sustained weakness below this level could open a path lower towards 104.00 and 102.00, respectively.

A scenario where bulls are able to push the USDJPY back 107.00 and secure a monthly close may signal the start of a technical bounce.

With the USDJPY respecting a monthly bearish channel, the upside could be limited below the 110.00 resistance level which bears may use as an opportunity to send prices lower.

Original Source: FXTM Quarterly Market Forecast

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