Dollar/yen enjoyed another week of gains but did not reach 115. The greenback strengthened on data, yields and the Fed. The upcoming week features US inflation and other events.

USD/JPY fundamental movers - Triple win for the US Dollar

The ADP Non-Farm Payrolls beat expectations and the ISM Non-Manufacturing PMI hit 61.6 points, the highest ever. Markets did not wait for the official Non-Farm Payrolls to advance to new highs. The move was topped off by the hawkish words from Fed Chair Jerome Powell. He said that monetary policy could become tight, at least temporarily. All this sent the USD higher.

The yen did not attract any safe-haven flows. While U.S. VP Mike Pence criticized China, there was no new action on trade. The US and Canada reached an agreement for a new NAFTA deal, called USMCA, and this also cheered markets. There is also hope for a Brexit deal.

US inflation stands out

The second week of October is not as busy as the first one. However, the US inflation report stands out. After several months of accelerating prices, August saw a deceleration with a drop of the Core CPI from 2.4% to 2.2%. Another fall in core prices could weigh on the greenback and change the Fed’s calculations. In addition, watch out for the preliminary consumer sentiment report from the University of Michigan. The Japanese calendar does not feature any earth-shattering events.

See all the main events in the Forex Weekly Outlook

Updates:

USD/JPY Technical Analysis

115.55 was a high point in the first half of 2017 and is an upside target.

114.70 capped the pair in December and is the next resistance to watch. The round number of 114 is closely watched.

113.15 is the high point seen in July. 112.80 held the USD/JPY down in mid-September. 112.45 was a stepping stone for the pair when it traded on such high ground. 112.15 was a swing high early in the month.

111.80 was a peak in the dying days of August and serves as resistance. Close by, 111.50 capped the pair beforehand and is another barrier.

110.60 was a swing low in late July and then again in late August. 109.70 was a swing low in late August and provides extra support below the round 110 level.

Close by, 109.35 was a cushion in mid-July. 108.70 was a cushion early in the summer and 108.10 a swing low in late May.

Lower, we find 107.50 capped the pair in early April and is a strong line.

USD/JPY Daily Chart

USD/JPY Sentiment

I remain bullish on USD/JPY.

While the pair may need to take a breather after the recent advance, the trend remains to the upside on the Fed’s hawkishness and the underlying strength of the US economy.