Oil, USD/JPY Forecast: Two trades to watch

Oil falls on China demand worries

• China's PPI was weaker than expected
• China oil import data underwhelmed
• Oil tests 200 SMA

After falling 2.5% last week oil prices are extending losses at the start of the new week amid jitters over slowing demand and despite a tighter supply outlook for 2024.

Chinese data released over the weekend showed that consumer inflation rose modestly in February thanks to increased spending during the Lunar New Year. However, producer price inflation shrank more than expected in the same period, indicating that China's factories remain under pressure.

The data comes after uninspiring Chinese import data last week, which showed the country imported 10.74 million barrels a day from January to February, up 3.3% on an annual basis but down from the 11.39 million barrels seen in December.

China also set a GDP target of around 5% for 2024 but has offered few clues to any stimulus measures to support growth, raising questions over whether the target is realistic.

These demand worries have overshadowed market expectations of tighter supply after OPEC+ said it would extend current output cuts across Q2.

Looking ahead, Tuesday will see the focus on U.S. consumer price inflation data and the OPEC monthly market report.

Oil forecast – technical analysis

Oil is easing further from 80.00, testing the 200 SMA support around 78.00. A break below here would extend losses towards 75.50, the mid-February low and the lower band of the rising channel. Should sellers extend the bearish move further, support can be seen around 73.20.

Should buyers successfully defend the 200 SMA, 80.00 is the line in the sand that buyers will look to beat, opening the door to 83.50, the April 2023 high.

USD/JPY falls to a monthly low as BoJ rate hike bets build

• Japan’s Q4 GDP was upwardly revised

• Shunto wage negotiations in focus on Wednesday
• USD weakness persists after jobs data
• USD/JPY heads towards 200 SMA

USD/JPY is extending losses on divergence central bank expectations. Data over the weekend showed that Japan avoided a recession in the final quarter of last year, adding to evidence that the Bank of Japan could adopt a more hawkish stance towards monetary policy from the meeting this month. A growing number of policymakers appear to be warming to the idea of ending negative interest rates in the March 18th to 19th meeting.

Attention is now shifting to the “shunto” wage negotiations due on Wednesday, where Japanese firms could announce hefty pay rises, adding to inflationary pressures.

Meanwhile, the US dollar is struggling as the market is increasingly confident that the Federal Reserve will start cutting interest rates soon.

US non-farm payroll data on Friday showed stronger than expected job creation in February, but there was also a downward revision of January’s figure. Meanwhile US unemployment rose and wage growth lowered.

The data comes after Federal Reserve chair Jerome Powell said earlier in the week that the central bank was close to having enough evidence to start cutting rates.

This week, the main focus will be on Tuesday's US CPI data for clues and further evidence that inflation continues to cool.

USD/JPY technical analysis

After consolidating below 150.90 across February, USD/JPY has fallen sharply lower in recent sessions as it heads towards the 200 SMA and the falling trendline support at 146.15. Should sellers extend the bearish move below here, 145.00 comes into focus.

On the upside, buyers will look to rise above the 100 SMA at 147.90 and 158.80, the January high, to extend gains towards 150.90.