A positive US data feed, heightened rate hike bets and Trump’s reflationary blend make for a strong Dollar outlook, whilst a noted downturn in Gold and other Yen pairs are a signal risk appetite may be back in town.
USD/JPY will probably rise to 115.50 say BOTM in a recent recommendation to clients seen by PSL, citing recent hawkish commentary from Fed speakers and Trump’s policy mix as major factors in the forecast.
“Market expectations for a March Fed rate hike have been building after NY Fed President Dudley’s speech on Tuesday and Governor Brainard’s speech on Wednesday, while President Trump’s address to Congress this week was a big boost for US stocks. Both factors are likely to push
USD/JPY higher,” said the BOTM note.
Recent US jobless claims data showed the number of unemployment claims falling to a 44-year low, and this is likely to feed into further upside for the Dollar ahead of more employment market stats on March 10, say BOTM.
A lack of details about Trump’s policy plans, however, are at risk of undermining Dollar gains, however.
“Trump’s policy proposals, especially tax reform and fiscal spending, still lack hard details, so dollar strengthening pressure may build only slowly,” says the note.
We see even more upside potential for USD/JPY coming from signs of a bout of weakness in Yen pairs and Gold, as a period of risk taking lessens safety flows to these two assets.
Both charts of Gold and EUR/JPY have shown recent breaks below (and above in the case of EUR/JPY) major trendlines, which forecast further downside for these two assets, and therefore for safe havens in general.
A rise in flows to emerging market equities is a further sign of rising risk appetite.
We foresee this a major theme in the short-term which is likely to weigh on the Yen side of the pair and further help propel USD/JPY higher.
Our technical analysts suggest 115.50 is only the start and that the pair could well return to touch the 118.17 highs in time.
The chart of the pair suggests an Elliot 5th wave may be forming higher from the recent trough at the 111 lows on the daily chart.
The current fledgling rally will probably continue rising until at least the 118 highs.
The MACD indicator is rising and falling in such a way as to corroborate this Elliot wave interpretation.
Research shows that MACD rises to a peak when Elliot wave 3 is peaking, it then ususally falls to below the zero line with wave 4.
This exactly mirrors what has happened on USD/JPY so far.
Now MACD is expected to rise along with wave 5 and form a lower high compared with the peak of 3 of the MACD.