USD/JPY Weekly Forecast: Neutral Under 114.5 As Market Lacks Volatility

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• The USD/JPY pair hit a new high and broke resistance at 114.10 in December.
• The dollar emerged due to a decrease in risk aversion and inflation in the US.
• USD/JPY’s upside is vulnerable to a lack of liquidity towards the end of the year.

The USD/JPY weekly forecast looks to be neutral around the key level of 114.50 that caps the rallies at the moment. Further directional bias is expected after the holidays.

We believe the USD/JPY pair will continue to grow fundamentally in the first quarter. US Treasury bond rates will be exempt from a portfolio adjustment at the end of January, and with the Fed anticipating an increase in federal funds in March, rates will rise. During the first quarter, inflation should moderate be in the US, improving the dollar’s position without jeopardizing the Fed’s intentions.

For the third consecutive month, Japan’s industrial production data is forecast to improve in November. On the other hand, October’s retail sales (sales) are expected to nearly double to 1.7%. However, this won’t affect trading next week.

There has not been a proportional increase in hospital admissions in New York and other parts of the United States in response to the growing number of COVID-19 cases, which means economic reluctance is unlikely to persist. Although the economic impact of this coronavirus wave is uncertain, its potential undermined growth prospects and excited markets around the world.

The US economy remained dominated by inflation. Price inflation in consumer spending (PCE), the Fed’s preferred inflation target, rose sharply to 5.7% annually in November. Compared with October, the PCE price index was 4.7%, the highest since September 1983.

Christopher Waller said in a speech on Friday after the FOMC meeting that the goal of increasing the program from $15 billion to $30 billion is to have it approved at the FOMC meeting on March 15 and 16. Waller said the Fed funds need to be raised to make this meeting “alive.”

Key Dates/Events for USD/JPY

Liquidity shortages and a lack of consistent resistance will make the upside vulnerable during the coming week. However, the support levels between 114.00 and 112.75 are regular, well traded, and prevent further selling.

USD/JPY Weekly Technical Forecast: Stagnant Under 114.50

The USD/JPY price remains above the 20-day and 50-day SMAs, shy of strong resistance at 114.50. However, the volume showed a decline during the last three trading days of the week. This indicates a lack of conviction in the recent uptick move. Further resistance levels come at 115.00 ahead of 115.50. On the flip side, 113.60 (20-day SMA) ahead of swing low around 112.50.