Dollar/yen emerged from the lows mostly thanks to optimism about peace in the Korean peninsula and also as the US Dollar retreated against many currencies. The US inflation report is the main event in a relatively light week on the calendar, but geopolitics could continue to play a role.

USD/JPY fundamental movers

It was certainly a busy week. The main driver of the pair to higher ground was the news that North Korea would be willing to forgo its nuclear weapons if it gets guarantees for its regime. When Donald Trump accepted the invitation to meet North Korea’s Kim Jong-un, the pair already soared. Demand for safe-haven assets dropped.

The tariffs that Trump imposed on steel and aluminum were slightly watered down, also removing some of the fear, but this story will likely go on and on.

The Bank of Japan left its policy unchanged and it seems quite unlikely that they will remove any stimulus in the fiscal year 2019. The previous comments were backtracked and the impact diminished.

In the US, the Non-Farm Payrolls showed a huge gain of 313K positions in February + 54K in upwards revisions. However, wages rose only 0.1% m/m and decelerated to 2.6% y/y.

Inflation, retail sales, and further geopolitics

The calendar is relatively light, but Tuesday’s inflation report will be watched very closely. Core CPI is still at 1.8% and no change is expected. Any deviation from that number may change expectations for the number of hikes the Fed will imply in its dot-plot. A rate hike in March is all but certain.

The retail sales report on Wednesday gets its time in the limelight, without any other figures in the way. Later on, housing data and consumer sentiment will end the week.

Watch out for any geopolitical news: a Kim-Trump summit has not been finalized, nor has an inter-Korean meeting. In addition, the trade battles may escalate to full-blown trade wars.

In Japan, the main event is the release of the BOJ Meeting Minutes, but this will unlikely be a market mover.

See all the main events in the Forex Weekly Outlook

Updates:

USD/JPY Technical Analysis

112.90 served as support in December and is a pivotal line in the range. 112.20 used to be important in the past.

It is closely followed by 111.70, which provided support back in October. The round level of 111 worked as a cushion to the pair in November.

Looking down, 110.70 was a separator of ranges in June and remains important. The round number of 110 serves as a psychological level.

109 was a pivotal line within the range. 108.30 was the low seen in late January. Even lower, we find 107.30 was the low in September and now turns into resistance.

106.50 was a resistance line in mid-February. The 105.25 low is the next line to watch, serving as a low point around the same time.

If the pair falls even lower, the round number of 105 will come into play, followed by 103.30.

USD/JPY Daily Chart

USD/JPY Sentiment

I remain bearish on USD/JPY

The good news is already in and the pair escaped oversold territory. However, any deterioration around North Korea and a poor inflation report may weigh on the pair.