Week Ahead: USDJPY braces for quadruple risk cocktail

• USDJPY ↓ 2.5% YTD
• Yen expected to be one of the most volatile G10 currencies vs USD
• US PCE + Japan CPI combo = fresh volatility?
• Japan CPI forecast to trigger moves of ↑ 0.4% & ↓ 0.2%
• Bloomberg FX model – 74% USDJPY – (150.21 – 155.26)

Even as anticipation builds ahead of the US CPI report this afternoon (Friday, 13th February), traders are bracing for more high-risk events in the week ahead.

From the Fed’s meeting minutes to the Japan CPI report and the US December PCE index, among other key reports will be in focus:

Monday, 16th February

• US Markets closed for Presidents’ Day holiday
• JPY: Japan Q4 GDP, industrial production
• EUR: Eurozone Industrial Production (Dec)
• CAD: Canada Housing Starts (Jan)

Tuesday, 17th February

• AUD: RBA Meeting Minutes
• GBP: UK Unemployment Rate (Dec)
• EUR: Germany ZEW Economic Sentiment Index (Feb)
• JPY: Japan Balance of Trade (Jan)
• USD: US Empire manufacturing

Wednesday, 18th February

• GBP: UK Inflation Rate (Jan)
• USD: FOMC Minutes, US Building Permits (Nov, Dec), Durable Goods Orders (Dec), Housing Starts (Nov, Dec)
• NZD: New Zealand rate decision
• Crude (WTI, Brent): US API Crude Oil Stock Change (w/e Feb 13)

Thursday, 19th February

• AUD: Australia Employment Data (Jan)
• USD: US Balance of Trade (Dec), Initial Jobless Claims (w/e Feb 14)
• EUR: Eurozone Consumer Confidence (Feb)
• Crude (WTI, Brent): US EIA Crude Oil stocks Change (w/e Feb 13)
• US30: Walmart earnings

Friday, 20th February

• GBP: UK Retail Sales (Jan), S&P Global Manufacturing & Services PMIs (Feb)
• EUR: Germany HCOB Manufacturing, Services & Composite PMIs (Feb)
• CAD: Canada Retail Sales (Jan)
• JPY: Japan CPI, S&P Global manufacturing
• USD: US PCE Price Index (Dec), GDP Growth Rate (Q4), Personal Income & Spending (Dec)

The USDJPY is back in focus thanks to a string of high-impact data releases from the United States and Japan.

Over the past few weeks, the USDJPY has exhibited heightened volatility amid concerns about intervention, political risk in Japan, and overall dollar volatility.

With the Yen expected to be one of the most volatile G10 currencies versus the USD next week, this could spell fresh trading opportunities.

Here are 3 reasons why the USDJPY could see significant swings:

1) Fed minutes + US December PCE

The Federal Reserve releases minutes from its Jan 27 – 28 meeting, when it held interest rates steady. Any new clues regarding future policy moves may impact expectations for lower rates over the coming months.

But the major risk event for the dollar may be the Fed’s preferred inflation gauge – the Core PCE.

Markets are forecasting the core PCE deflator to rise 2.9% in December compared to 2.8% in the previous month. Ultimately, signs of rising inflationary pressures may further cool bets around the Fed cutting rates anytime soon.

USDJPY is forecast to move 0.2% up or 0.3% down in a 6-hour window after the US PCE report.

2) Japan Q4 GDP + Japan CPI

It’s a data heavy week in Japan with the latest GDP figures and key CPI report likely to shape bets around the BoJ hiking rates.

Economic growth is expected to have rebounded in Q4, while CPI is seen cooling 1.6% in January compared to the 2.1% in the previous month.

Traders are currently pricing in a 78% chance that the BoJ hikes rates by April. Any major shifts to these expectations could rock the Japanese Yen.

3) Technical forces

The USDJPY is under pressure on the daily charts with prices approaching the 152.00 support level. However, the RSI is approaching oversold levels.

• A solid breakout and daily close below 152.00 may open a path toward the 200-day SMA at 150.50.

• Should 152.00 prove to be reliable support, this could send prices toward the 100 and 50-day SMA.

Bloomberg’s FX model points to a 74.6% chance that USDJPY will trade within the 150.28 – 155.04 range over the next one-week period.