USD/JPY forecast unlikely to be altered by French elections

The USD/JPY came off its earlier highs on Friday after rising to a new multi-decade high above 161 handle. There was no intervention to be seen despite officials from Japan again threatening to do so. This kept the pressure on the yen against all other major currencies. Is so far as the USD/JPY is concerned, there was some attention on the May Core PCE index. But this data failed to move the markets much as it was bang in line with the estimates. More US economic data is to come in the next couple of weeks, with the June non-farm jobs report due on Friday, followed by the CPI report on July 11. But this weekend, there is a more pressing issue: French elections. Whether this will impact the USD/JPY forecast remains to be seen. Thus, the more likely source of support for the yen is likely to come from BoJ/MoF intervention, until such a time that the BoJ tightens it policy more aggressively.

French election uncertainty undermines French stocks

Ahead of Sunday's French elections, European markets, particularly in France, were underperforming compared to a tech-driven Wall Street. The S&P 500 reached a new record high and was on track to finish up for the fourth consecutive week. Month- and quarter-end flows in high-performing tech stocks were helping to keep US equities buoyant as we approach the second half of the year. In contrast, French stocks were under pressure as the weekend approached, with the benchmark CAC index testing its lowest levels since January. However, if the election results indicate increased support for the far-right RN party, the market could experience instability at the open in the week ahead

Could the French election impact the USD/JPY forecast?

Will this trigger a sharp move in the FX space and cause the yen to reverse its trend? Well, judging by price action in the EUR/JPY, which has basically mirrored the USD/JPY in breaking higher to multi-year high, we doubt that the yen will receive much benefit from any haven flows. However, we can’t ignore the potential for a shock outcome.

USD/JPY forecast: technical analysis

Source: TradingView.com

The USD/JPY reached a 38-year high after breaking above both the MOF intervention level set on April 29th and the 160 psychological handle. With the EUR/JPY and GBP/JPY rising to 32 and 26-year highs respectively, and AUD/JPY reaching a 17-year high, the pressure is intense on the yen. It will take something big to reverse this trend. Thus dip-buying in the USD/JPY and other JPY crosses remains the dominant trade.

With 160.00 broken, this is now the first line of defence for the bulls, followed by the bullish trend line at 157.70 - 158.00 area. There are no obvious resistance levels to monitor. So, watch round handles like 161.00, 162.00, etc. Meanwhile, the 127.2% Fibonacci extension of the April-May drop, near 162.50 is an additional bullish target to monitor.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R

The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Please note that foreign exchange and other leveraged trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved, seeking independent advice if necessary.

The products and services available to you at FOREX.com will depend on your location and on which of its regulated entities holds your account.

FOREX.com is a trading name of GAIN Global Markets Inc. which is authorized and regulated by the Cayman Islands Monetary Authority under the Securities Investment Business Law of the Cayman Islands (as revised) with License number 25033.

FOREX.com may, from time to time, offer payment processing services with respect to card deposits through StoneX Financial Ltd, Moor House First Floor, 120 London Wall, London, EC2Y 5ET.

GAIN Global Markets Inc. has its principal place of business at 30 Independence Blvd, Suite 300 (3rd floor), Warren, NJ 07059, USA., and is a wholly-owned subsidiary of StoneX Group Inc.