USD/JPY breaches 2016 high as APAC traders eye risk-on session

Friday’s Asia-Pacific outlook

Asia-Pacific traders will look to close out the week on a high note as markets shift back into a risk-on stance as oil prices drop and US equities rise. The high-beta Nasdaq-100 Index (NDX) rose nearly 2% in New York trading overnight. WTI crude and Brent crude oil prices fell despite a recommitment from NATO to supply Ukraine with more aid as Russia’s indiscriminate shelling of Ukrainian cities intensified despite fierce backlash from Ukrainian forces. Those forces reportedly destroyed a Russian warship this morning in Berdyansk, a port town west of Mariupol. The Japanese yen extended its decline versus the Greenback overnight, with USD/JPY rising to its highest level since December 2015.

The Australian dollar rose for a third day against the US dollar, supported by a strong set of Australian PMI numbers released on Thursday. That data firmed up Reserve Bank of Australia (RBA) rate hike bets, with cash rate futures showing a rate liftoff as soon as the June board meeting. RBA Chief Philip Lowe has slowly but steadily capitulated on a possible rate hike this year, even though wage inflation hasn’t risen as strongly as previously expected. Aussie dollar traders will evaluate retail sales for February, due out next week. Meanwhile, AUD/USD is likely to take its cues from broader market sentiment and commodity prices.

Japan will release inflation data for Tokyo’s March period this morning. Bank of Japan policymakers are signaling that the war in Eastern Europe is likely to stoke higher prices in the Japanese economy due to higher raw material costs. However, the BOJ doesn’t appear to have much enthusiasm to remove its super-easy policy accommodations yet. For now, inflation in Japan remains rather subdued compared to other G7 economies. The dovish talk has seen the divergence between Fed and BOJ policies widen, increasing short bets on the yen to the dollar’s advantage. That will likely underpin USD/JPY even with the currency pair at multi-year highs.

The week will end with a light economic event docket. The Philippines’ retail price index for December and its first-quarter business confidence are set to cross the wires. Taiwan’s consumer confidence will see an update for March. China’s fourth-quarter current account balance is due out, and India will wrap up the week with bank loan growth and deposit growth figures for the week ending March 11.

USD/JPY technical forecast

USD/JPY broke above the 2016 high (121.68) overnight after the yen weakened for a fifth straight day versus the US dollar. That move stemmed from the 261.8% Fibonacci extension of the January high/low move. A pullback may see the former 2016 act as support. However, prices look set to rise further, indicated by strength in the Relative Strength Index (RSI) and MACD oscillators. The 361.8% Fib extension and the 2015 high at 125.85 are possible targets that may be hit shortly if the current pace keeps up.

USD/JPY daily chart

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