USD/JPY Forecast December 17-21 – Focus On Federal Reserve, U.S-China Trade War

Dollar/yen posted considerable gains last week, erasing most of the losses from the first week in December. What’s next for the yen? Central banks will be in focus, with the BoJ and Federal Reserve setting rates this week. The U.S will release Final GDP for the third quarter.

USD/JPY fundamental movers

The markets remain sensitive to the U.S-China trade war, and any developments could have a significant impact on the direction of the pair. Talks between the sides are expected to begin shortly, with a March 1 deadline for further U.S tariffs if no deal is reached. The recent arrest of the CFO of Huawei has cast a pall over the talks and soured the market mood.

The global trade war continues to weigh on the Japanese economy. Japanese Final GDP in Q3 declined 0.6%, the second decline in three quarters. The well-respected Japanese Tankan Manufacturing index remained steady at 19 points in the third quarter. However, other manufacturing indicators have pointed downwards, pointing to slower activity in the manufacturing sector. This is attributable to slower global economic conditions, which has taken a bite out of Japanese exports and manufacturing.

The Federal Reserve is widely expected to raise the benchmark rate this week, which would be the fourth rate hike this year. However, with U.S GDP and other releases pointing to slower growth, the Fed is sounding more dovish, with analysts expecting just one or two rate hikes in 2019.

See all the main events in the Forex Weekly Outlook

USD/JPY Technical Analysis

115.55 was a high point in the first half of 2017 and remains an upside target. 114.60 was the high point in early October and serves as resistance. 114.25 was the high point in November.

114 is a round number and was a stepping stone on the way down. Close by, 113.80 was a resistance line in November.

113.15 was a swing high back in July. 112.25 provided support in early December and it defends the 112 level.

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