USD/JPY Forecast March 4-8 – Higher Risk Appetite Over U.S-China Talks Sends Yen Lower

Dollar/yen enjoyed its strongest gains since mid-January, climbing 1.1% last week. For the first time in 2019, the pair punched above the 112 level. Risk appetite remains strong as trade talks between the U.S and China have picked up steam. Japanese GDP for Q4 is forecast to show a gain of 0.3% unchanged from the first estimate. In the U.S., the focus will be on employment data, highlighted by nonfarm payrolls. 

USD/JPY fundamental movers

The Federal Reserve remains in dovish mode, and this was reiterated by Fed Chair Jerome Powell in testimony before Congress last week. Powell stated that the Fed was in “no rush to make a judgment” and made reference to “conflicting signals in the economy”. The labor picture remains bright, with strong hiring and low unemployment. At the same time, consumer spending and housing data have been soft. The markets are expecting the Fed to remain on the sidelines in May and June, meaning that the first hike of 2019 will not come before the second half of the year.

There is growing optimism that the U.S. and China will reach an agreement on trade, which would greatly reduce trade tensions which have hurt global economic growth. President Trump has said he will not impose punishing new tariffs on March 1, and there is even talk of a meeting between Trump and Chinese President Xi at the end of March if the sides reach an agreement. Increased risk appetite has weighed on the safe-haven Japanese yen.

See all the main events in the Forex Weekly Outlook

Key news updates for USD/JPY

USD/JPY Technical Analysis

USD/JPY posted sharp gains last week, breaking through resistance at 111.65 (mentioned last week).

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 has held in resistance since then.

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.

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