USDJPY Outlook: The Dollar In the Driver’s Seat But On Precarious Support

Summary:
• USDJPY has made marginal gains, but the US dollar is susceptible to major PMI-driven slips as the underlying fundamentals are weak.

USDJPY returned to the ascending lane on Friday as the market readjusted ahead of major US data publication. The pair traded at 150.34, having gained 0.30% at the time of writing. The US dollar closed -0.47% against the yen on Thursday, after lower-than-expected US macroeconomic data. The yen, on the other hand, was boosted by a favourable CPI reading.

Japan’s Core CPI stood at 2.6% year-on-year, beating the forecast figure of 2.3%The market is currently tilted towards the dollar, in the absence of high-impact data from Japan on Friday. USDJPY will be impacted by a series of high-impact Purchasing Managers Index (PMI) readings from the US on Friday. The greatest impact will, however, come from S&P Global Manufacturing PMI , ISM Manufacturing PMI and ISM Manufacturing Prices, all of which will give February readings.  

The US economy has printed out multiple data below analysts’ projections this week. The week saw the misses by the Q4 2023 GDP, Initial Jobless Claims, New Home Sales, Durable Goods Orders and Core PCE Price Index. These have created a FUD sentiment bubbling under the dollar’s resilience, and the impact could spill over into next week if the PMI figures miss projections.

Beyond the macroeconomic data, the dollar also faces headwinds from falling Treasury yields. Yields on 5 year bonds are down by 3 basis points, while 10-year bonds have their yields down by a single basis point as of this writing.  This could increase the downward pressure on the USDJPY pair in the short term. Meanwhile, speeches by three FOMC members scheduled for Friday could inject fresh impetus on the pair,

Technical analysis

USDJPY pivots at 150.05, and the bulls will need to stay above this level to retain control. A buyer-controlled market will provide impetus to attempt breaking the 150.85 resistance. Furthermore, extended control by the bulls could see them have a go at 151.00. However, if the sellers take control, at the 150.05 resistance, the 149.85 support could be broken. That would invalidate the bullish narration and push the next target to 149.50.