Outlook for this week

The USD/JPY pair reached close to the high recorded on Thursday last week (18/5), with a high of 138.69, nearing the high of 138.76 (highest in about half a year since 30/11/2016). The daily candlestick chart suggests that the technical indicators are currently strong, with the “Ichimoku Kinko Hyo” and the “Dow Theory” signaling a strong buy signal in all timeframes from higher to lower.

Fundamentally, the latest developments such as the reduction of the interest rate cut expectation from the US Federal Reserve (FRB), and the Bank of Japan’s plan to maintain its easing policy for a while, as well as the expansion of the yield spread between Japan and the United States, all support an upward trend in USD/JPY exchange. Although there are some uncertainties such as the concerns over the US financial system related to regional banks (as the Treasury Secretary, Janet Yellen commented on the necessity of bank consolidations), or the US debt ceiling issue (as the Chairman of the financial services committee of the US Congress, Richard McHenry expressed his pessimistic view), they are expected to be overcome in the long run.

Based on the above, we predict that the USD/JPY pair will continue to rise, targeting the high recorded on 21/11/2016 of 142.27. Important events to be watched this week include a meeting between the US President, Joe Biden and the House Speaker, Nancy Pelosi on the US debt ceiling issue, as well as speeches by Robert Kaplan, the President of the Federal Reserve Bank of Dallas, the preliminary manufacturing and non-manufacturing PMI figures for May, the new home sales data for April, and the Richmond Fed Manufacturing Index for May.

Expected range for this week: 137.75-139.25