USD/JPY Price Forecast: Sellers Remain in Control, with Eyes on New Congress Return January 3rd

  • Focus will be on Congress Convening and Democrats taking over House of Representatives. A vote is anticipated on the 3rd.
  • USD/JPY trading at lowest level since June, key weekly support eyed at 109.50.

Tuesday has marked the eleventh day of the partial government shutdown in the U.S., which was forced by President Trump’s demand for a wall. The greenback has taken a sheer beating over this period of the shutdown, with the USD index having dropped 1.3%. Eyes will be on further potential outflows from USD should there continue to be a lack of progress.

USD Index daily chart. Lowest levels seen since November 2018. Price pressure to the downside intensified, following breach of critical long-running ascending trend line.

Focus on Congress Convening 3rd January

This partial government shutdown is likely to continue until the new Congress convenes and Democrats take over the House of Representatives. It is widely anticipated that the House Democrats will put forward a proposal for a vote to push for the reopening of the federal government.

Citing a Democratic leadership aide, the legislation includes full-year appropriations for six out of seven outstanding funding bills. In addition, this includes the required stop-gap funding for the Department of Homeland Security, until 8th February, which is a key factor behind the disagreements caused by Trump’s demand for $5.7 billion in border wall funding. Democrats are planning to pass them as soon as the new Congress convenes Thursday.

Technical Review – USD/JPY

Given the above detailed political developments or lack of, expect further potential flights into safe-havens like JPY. Looking at USD/JPY, the pair is running at its third consecutive week in moving to the south. The pressure to the downside has been seen since the week commencing 17th December.

It had been flirting with a known strong area of supply for around 12 weeks; this can be seen from 113.50-115.00. Market bulls tested the detailed region on countless occasions over the mentioned period, however failed to break it down.

Downside Targets

USD/JPY weekly chart. Next level of support eyed at 109.50. Any rallies may present good shorting opportunities.

During the last trading session, 31st December, USD/JPY saw further downside, to its lowest level seen since June. The price is hovering not too far off weekly support eyed around the 109.50 area. A firm break and close below, could leave the door open to larger selling.

There is another critical area of demand that would be sought at, should the 109.50 level be broken down. It can be seen tracking from 109-107.50 range, which has proven to find buyers on several occasions in 2018.

Keeping the above in mind, any USD/JPY rallies or bounce seen could provide opportunities for deeper shorts. If the FOMC slows down as anticipated with their rate hiking cycle, this will likely be another factor in seeing USD/JPY sellers well in control.

Featured image courtesy of Shutterstock.

 

 

 

 

 

Author:
Ken has over 8 years exposure to the financial markets. During a large part of his career, he worked as an analyst, covering a variety of asset classes; forex, fixed income, commodities, equities and cryptocurrencies. Ken has gone on to become a regular contributor across several large news and analysis outlets.