Forex Market: USD/JPY daily trading forecast

Yesterday’s trade saw USD/JPY within the range of 123.96-124.39. The pair closed at 124.27, up 0.10% on a daily basis, or the smallest daily gain since June 17th, when it appreciated 0.06%. The daily high has also been the highest level since June 17th, when the cross registered a high of 124.45.

At 9:31 GMT today USD/JPY was up 0.03% for the day to trade at 124.31. The pair broke the daily R1 level and touched a daily high at 124.48 at 5:45 GMT. It has been the highest level since June 10th, when the cross registered a daily high of 124.64.

Fundamentals

United States

Rate hike expected as early as September?

The US dollar received support, as the Fed President for St. Louis, James Bullard, bolstered expectations that borrowing costs in the United States could be raised at the central bank’s meeting in September. Yesterday Bullard told the Fox Business network that the Federal Reserve is likely to introduce the first rate hike in a decade as early as September, as annual consumer inflation is poised to reach the central bank’s inflation target, while the rate of unemployment is set to slide below 5%.

Federal Reserve Chair, Janet Yellen, reiterated in her testimony before US Congress last week that the central bank remains on track to raise borrowing costs at some time this year. Her comments were in line with the FOMC’s most recent policy statement and a speech she held on July 10th, when she underscored a continued weakness in the US labor market, but also expressed confidence that the US economy will continue to grow steadily in 2015, helping improve labor conditions.

Bond Yield Spread

The yield on US 2-year government bonds climbed as high as 0.710% on July 20th, or the highest level since July 2nd (0.716%), after which it fell to 0.706% at the close to gain 3.7 basis points (0.037 percentage point) for the day.

Meanwhile, the yield on US 10-year government bonds climbed as high as 2.396% on July 20th, or the highest level since July 16th (2.398%), after which it slipped to 2.372% at the close to gain 2.5 basis points (0.025 percentage point) on a daily basis.

Markets in Japan remained closed on July 20th for the Marine Day holiday.

Taking into account the period January-June 2015 and basing our calculations on weekly closing prices, we came to the conclusion that USD/JPY performance and the development of the yield spread between 10-year bonds in the United States and Japan showed a correlation of 0.8219, which suggested that the pair and the yield spread moved very strongly in one and the same direction. During the period January-June, USD/JPY has appreciated 3.56%, while the spread between 10-year bond yields in both countries has widened 16.97% to reach approximately 1.95% in late June from approximately 1.67% in early January.

Pivot Points

According to Binary Tribune’s daily analysis, the central pivot point for the pair is at 124.21. In case USD/JPY manages to breach the first resistance level at 124.45, it will probably continue up to test 124.64. In case the second key resistance is broken, the pair will probably attempt to advance to 124.88.

If USD/JPY manages to breach the first key support at 124.02, it will probably continue to slide and test 123.78. With this second key support broken, the movement to the downside will probably continue to 123.59.

The mid-Pivot levels for today are as follows: M1 – 123.69, M2 – 123.90, M3 – 124.12, M4 – 124.33, M5 – 124.55, M6 – 124.76.

In weekly terms, the central pivot point is at 123.44. The three key resistance levels are as follows: R1 – 124.87, R2 – 125.67, R3 – 127.10. The three key support levels are: S1 – 122.64, S2 – 121.21, S3 – 120.41.