During the past week Japanese yen has once again played the role of a refuge currency, while weak US data created negative effect on USD.
USD/JPY breached support in the 117.90 area and entered the daily Ichimoku Cloud. The key support is at 115.55 (38.2% Fibo of the Oct. to Dec. advance and Dec. 16 low). If the pair fixes below this level, we’ll get a double top, and the greenback will slide towards 113.50 and 111.50. If the US currency manages to stay above 115.50, it will get a chance to rise to the descending triangle’s top in the 120.00 area, but this resistance will be very hard to break.
All in all, the situation for the pair looks more negative, and we expect that the pair is on its way down. The Bank of Japan will meet on Wednesday, and it’s likely to revise down its inflation forecasts. We don’t think that the central bank will increase quantitative easing in the near future because Japanese yields are already very low which decreases the nation’s appeal to investors. At the same time, the BOJ may extend the so-called ‘qualitative’ easing proving banks with cheap loans, but this won’t hurt yen much. If American yields remain under pressure, dollar’s room for growth will be limited. USD/JPY will be also affected by the decline in EUR/JPY. Next week there will be little news from the United States, so USD/JPY will be influenced mainly by the market’s risk sentiment.