USD/JPY forecast as Japan trade surplus gains momentum

The USD/JPY pair was relatively unchanged during the Asian session as investors reflected on the latest Japan trade and machinery order numbers. The pair is trading at 109.50, which is slightly higher than this week’s low of 109.10.

Japan trade and machinery orders

The USD/JPY pair jumped on Tuesday after the relatively mixed economic data from the United States. The numbers showed that the country’s retail sales numbers declined by more than 1% in July as momentum slowed. Consumers were also turned off by the relatively higher consumer prices.

Additional data showed that the industrial and manufacturing numbers rose in June after struggling in the past few months. Therefore, the US dollar rose because of the rising number of Covid-19 cases in the US and other countries. In particular, New Zealand reported its first case in six months while Australia’s cases rose.

The USD/JPY reacted mildly to the latest Japan trade numbers. Data by the country’s trade agency said that exports rose for the fifth straight month. Exports rose by 37% year-on-year, which was slightly below the median estimate of 39%. 

Imports, on the other hand, rose by 28.5% in July after rising by 32.7% in the previous month. As a result, Japan reported a trade surplus of more than 441 billion yen, which was higher than the previous 384 billion yen.

Meanwhile, the country recorded strong machinery order numbers in June. Core machinery orders declined by 1.5% in June. While this was a significant decline from the previous month’s growth of 7.8%, it was better than the median estimate of -2.8%. Consequently, sales rose by 18.6% on a year-on-year basis.

The USD/JPY pair will next react to the latest Federal Reserve minutes that will come out later today. The minutes will provide more colour about the deliberations about quantitative easing.

USD/JPY technical analysis

The USD/JPY pair rose from this week’s low of 109.10 to 109.65. On the four-hour chart, the pair is trading along the 25-day exponential moving average (EMA). It is slightly below the 50-day EMA.

At the same time, the MACD has formed a bullish crossover pattern while the histogram has moved above the neutral line. The pair is also forming a small bullish flag pattern.

Therefore, the USD/JPY price will likely maintain the bullish trend as investors target the key resistance at 110.