Yen. Image Source: Pixabay

The USD/JPY forecast is bearish, suggesting increasing demand for the safe-haven yen amid fiscal concerns in the US. At the same time, the dollar weakened against the yen after a poor Treasury bonds auction, which pointed to weak demand for US assets.

The yen extended gains on Thursday after reaching a two-week high against the dollar in the previous session. The rally came as market participants watched the progress of Trump’s tax bill. Although it had faced some resistance from Republicans, the bill might pass the Senate. Trump’s tax bill might add to the US’s already huge debt burden. 

Notably, Moody’s downgraded the US government’s credit rating, citing the country’s growing debt. The move further weighed on investor confidence in US assets. 

However, the dollar got some support against the yen after reports that the US and Japan had agreed that USD/JPY moves reflected fundamentals. Initially, market participants were suspicious that the US would pressure Japan to strengthen the yen. The US has suspected that Japan is keeping the yen weaker on purpose. A strong yen would allow US manufacturers to get a competitive edge.

Meanwhile, traders will keep an eye on US business activity data for clues on future Fed moves. Weak numbers will increase bets for a rate cut in September. The opposite is also true.

USD/JPY key events today

• Unemployment Claims
• Flash Manufacturing PMI
• Flash Services PMI

USD/JPY technical forecast: Sentiment shifts breaks support trendline

(Click on image to enlarge)

USD/JPY 4-hour chart

On the technical side, the USD/JPY price has broken below a solid support trendline, indicating a bearish shift in sentiment. The price now trades well below the 30-SMA with the RSI in the oversold region, suggesting a strong bearish bias. 

Initially, the price was in an uptrend, making higher highs and lows. Pullbacks respected the support trendline. However, after the last swing high, bears gained enough momentum to push the price below the 30-SMA and the support trendline. This showed they were ready to change the trend. However, they must still face the 142.55 support level. 

A break below this level would make a lower low, confirming the start of a downtrend. After that, the price would have to continue with a series of lower highs and lows.

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