USD/JPY forecast: Is it safe to buy the dip?

July 13, 2023 11:09 AM PDT | By Invezz

USD/JPY forecast: Is it safe to buy the dip? — Image source: Invezz

DXY index slips

The USD/JPY price continued retreating after a series of soft economic numbers from the US. On Friday, economic numbers revealed that the labour market was softening. The economy added over 209k jobs during the month, lower than the median estimate of 230k.

Another report published on Wednesday revealed that the country’s inflation was in a downward trend. The headline consumer price index (CPI) dropped from 4.1% in May to 3.0% in June. If this trend continues, it means that the headline CPI will drop to Fed’s target of 2.0% in the coming months.

The risk for the Fed is that the US inflation could move below zero early this year. Such a move will likely see the bank undo some of the recent rate hikes in a bid to stimulate inflation and boost economic growth.

Watch here: https://www.youtube.com/embed/cu3BDfGU3j4?feature=oembed

Most analysts now expect that the Fed will hike interest rates by 0.25% this month followed by a prolonged pause.

Looking ahead, the next important catalyst for the USD/JPY price will be this month’s BoJ and Fed interest rate decisions. The Fed will conclude its meeting on July 26th followed by BoJ’s meeting on July 28th.

I suspect that the BoJ will leave interest rates unchanged and maintain a dovish tone since inflation in the country is also falling. In a note, analysts at ING said:

“In short, then, this USD/JPY move looks driven by the private not public sector (i.e. no intervention) and something like 138.25 looks like a near-term target for USD/JPY.”

USD/JPY forecast

USDJPY chart by TradingView

The USD to JPY exchange rate has been in a strong bearish trend in the past few weeks. It has managed to move below the ascending channel shown in green. Further, it has moved below the 25-day and 50-day moving averages.

Most importantly, the pair has retested the important support level at 137.80, the highest level on March 8th. The Relative Strength Index (RSI) has moved close to the oversold level. Therefore, I suspect that the sell-off will start to moderate and retest the lower side of the channel.

The post USD/JPY forecast: Is it safe to buy the dip? appeared first on Invezz.

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