USD/JPY, Oil Forecast: Two trades to watch

USD/JPY holds steady ahead of the Fed & BoJ decisions this week

• The BoJ & the Fed announce rate decisions on Wednesday.
• US retail sales data is due today
• USD/JPY has paused above its 5-month low

USD/JPY is holding steady after modest gains of 0.4% last week as the pair rose corrected higher from a 5-month low.

The USD is falling against its major peers as it continues to hover around a 5-month low, weighed down by economic slowdown fears from Trump’s trade policies. Data on Friday showed that US Michigan sentiment fell to a 2.5-year low, while 5-year inflation expectations jumped to the highest level since 1993. This comes amid soaring concerns over the effect of Trump's sweeping tape trade tariffs, which have ignited a global trade war.

Attention will now turn to US retail sales figures due later today, which could offer some insight into the health of the world's wildest economy. Sales are expected to recover by 0.7% MoM after falling 0.9% in the previous month. Weaker-than-expected sales could fuel slow-down worries.

Looking ahead, the Federal Reserve meets on Wednesday and is expected to leave interest rates on hold at 4.25% to 4.5%. The market will be watching Federal Reserve chair Jerome Powell's comments closely, particularly those regarding the outlook for the economy and inflation amid escalating trade tensions.

The BoJ is widely expected to keep interest rates on hold when it meets on Wednesday; however, conditions for a further rate hike have been falling into place. Big Japanese firms are offering bumper pay hikes in wage talks at the unions for a third straight year, which could boost household spending and spur a pickup in consumption. BoJ governor Ueda highlighted this in a speech in parliament last year, although he also noted he was worried about the uncertainty from overseas economic developments.

USD/JPY forecast -technical analysis

USD/JPY continues to trade in a falling channel dating back to the start of the year. It fell from 158.90 to support at 146.50, a 5-month low. The price has corrected higher from this level, pushing above 148.60 resistance.

Should buyers extend the recovery above 149.30, the 50% Fib retracement from the 139.50 low to the 158.90 high, the near-term downtrend could be negated, and 150.00 come into focus. Above here, the 38.2% Fib level comes into focus with a rise here, creating a higher high.

Sellers would need to take out the 147 support to create a lower low and extend the bearish trend.

Oil rises on China optimism.

• China revealed plans to lift consumption
• The US pledged to keep attacking Houthi rebels
• Oil recovers from multi-year lows to test 68.50 resistance

Oil prices are rising in early trade after China revealed plans to boost domestic consumption and after the US pledged to keep attacking Yemen's Houthi rebels.

Data from China released early this morning showed that Chinese retail sales rose by more than expected to 4%, and industrial production cooled by less than forecast to 5.9% from 6.3%. At the same time, the world's second-largest economy and top crude oil importer released a policy plan aimed at reviving consumption by lifting wages, increasing pensions, and creating incentives for childbirth.

Separately, the US launched a wave of strikes on who she targets after the group resumed attacks on ships in the Red Sea. Rising tensions in the Middle East boosted the risk premium on oil, lifting oil prices.

However, gains are likely to be capped by concerns over escalating trade tensions which could hurt the global economy and the demand outlook. Fears over increased supply from OPEC+ from next month I also expected to limit gains in oil prices.

Oil forecast- technical analysis

Oil has fallen from its 80.00 high, running into resistance at 65.30, a multi-month low. The price has recovered towards resistance at 68.50, testing the falling trendline resistance.

Should buyers, supported by the bullish crossover on the MACD, rise above 68.50, this negates the near-term selloff and brings 70.00, the psychological level, into focus. A rise above here creates a higher high.

Failure to retake the 68.50 resistance could see sellers test support at 6.40 and 65.30. A break below here creates a lower low and brings 2023’s low of 63.65 into focus.