Is the USD/JPY about to close at its highest levels since last May?

January 17, 2020 10:30

Source: Economic Events January 17, 2020 - Admiral Markets' Forex Calendar

The Japanese Yen has continued to avoid any signs of strength over the last few days, so instead, the USD/JPY saw an upwards push above 110.00, letting the currency pair trade at its highest level since May 2019.

While we still consider the midterm to be bearish for the USD/JPY (particularly due to the fact that the Fed is to continue to flooding markets with billions in liquidity to avoid a funding crisis in the repo market), and market participants, according to the Fed Watch Tool, still expect at least one 25 basis point cut in 2020 with a likelihood of 60%, resulting in limited upside potential for the USD/JPY. So we have to admit that current market conditions are not very favourable for the JPY.

With US inflation coming in at 2.3% year-on-year for last December, the highest level since October 2018, and US Retail Sales (also known as "backbone of the US economy" adding more than 30% to the US GDP) on Thursday matching expectations, the easing potential for the Fed seems limited, leaving, in our opinion, only a broad risk-off as a potential driver lower in the USD/JPY on the table.

And recently, with the signing of the Phase-1 trade deal between the US and China on Wednesday, chances seem good that no near-term tensions between the two countries arise, market conditions should see low volatility and thus unfavourable conditions the JPY.

That said, a sustainable push above 110.00, activating 110.70 is very likely, especially as long as the USD/JPY keeps on trading above 109.50.

Source: Admiral Markets MT5 with MT5SE Add-on USD/JPY Daily chart (between November 6, 2018, to January 16, 2020). Accessed: January 16, 2020, at 10:00pm GMT - Please note: Past performance is not a reliable indicator of future results, or future performance.

In 2015, the value of the USD/JPY increased by 0.5%, in 2016, it fell by 2.8%, in 2017, it fell by 3.6%, in 2018, it fell by 2.7%, in 2019, it fell by 0.85%, meaning that after five years, it was down by 9.2%.

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