CAD Outlook Weighed By Subdued Oil Prices; NAFTA Renegotiation

USD/JPY Daily

Chart – Created Using Trading View

• USD/JPY gapped lower to start the last full-week of January, with the pair at risk for a further decline as the Relative Strength Index (RSI) preserves the bearish trend carried over from the previous month; will keep a close eye on the Nikkei 225 as it broadly moves in tandem with the dollar-yen exchange rate, and the downside targets remain in focus for both the dollar-yen and the benchmark equity index as they remain stuck in a double-top formation (measured move highlights the risk for a move back towards the 110.00 handle).
• Japan’s Consumer Price Index (CPI) may fuel speculation for additional monetary support as the core-core rate of inflation, which strips out volatile items such as food and energy costs, is expected to contract an annualized 0.1% in December, but the depreciation in the local currency may encourage the Bank of Japan (BoJ) to retain the status quo at the January 31 interest rate decision as Governor Haruhiko Kuroda remains confident in achieving the 2% target for inflation over the policy horizon; the Federal Reserve also looks poised to preserve its current policy at its February 2 rate decision as the 4Q U.S. Gross Domestic Product (GDP) report is expected to show the growth rate increasing an annualized 2.2.% followed the 3.5% expansion during the three-months through September.
• USD/JPY appears to have made a failed attempt to work its way back towards the monthly opening range as it remains capped by the 20-Day SMA (115.69), with the pair at risk of making another run at near-term support around 112.40 (61.8% retracement) to 112.50 (38.2% retracement) should risk sentiment continue to abate.