The USD/JPY pair gained bullish momentum and broke out of its week-long range yesterday, starting today, Friday, at 149.23. This keeps the pair trading just above the 149.00 level by a few points, up by 1.1% daily.
The strength of the US dollar led to a sharp increase in the latter half of yesterday’s trading session.
Data released from the US showed that initial weekly unemployment claims fell to 227,000 from 234,000, and retail sales rose by 1%, surpassing market expectations of a 0.3% increase.
In my view, these readings eased concerns about an economic slowdown and recession in the US, prompting the dollar to rise by 0.55% daily, currently trading at 103.05.
Today, I believe investors are awaiting comments from Federal Reserve officials. Markets are currently pricing in a 23.5% chance of a 50 basis points rate cut by the Fed, down from around 50% at the beginning of the week.
The USD/JPY pair has experienced significant volatility recently but has begun to stabilize before the markets were shaken by the Nikkei index dropping over 12% last Monday, which led traders to flock towards safe-haven currencies like the Swiss franc and Japanese yen. As investor confidence gradually returned, the USD/JPY pair recovered from its low of 141.70, reaching over 149 during the week’s fluctuations, culminating in gains yesterday driven by strong US data.
In my view, the divergent monetary policies adopted by the Federal Reserve and the Bank of Japan significantly impact the USD/JPY pair, with the 150 level potentially acting as the current major resistance. Market expectations split on whether the Fed will cut rates by 25 or 50 basis points in September after the BoJ recently raised rates by 15 basis points.
While wages in Japan have seen a slight increase, annual spending has declined, reflecting cautious behaviour among Japanese consumers. The recent BoJ summary of opinions indicated that some members believe there is room for raising the “significantly low” interest rate, pointing to negative real interest rates at their lowest in 25 years. Some members are calling for more data, with one member suggesting a medium-term neutral rate of “at least 1%.” The Japanese GDP report for Q2 showed clear growth of 0.8%, but this did not provide much in terms of price movement in yen pairs in the forex market.
I believe the impact of US consumer price index data has ended as the primary market driver. As I anticipated in previous analyses, there was a type of “sell the fact” movement in the recent numbers. Despite US inflation figures coming in below expectations, the dollar did not fall, nor did Treasury yields. On the contrary, both rose, albeit modestly.
While bond movements remained stable, the dollar was more volatile. The dollar returned to its pre-data levels, but the exception was the USD/JPY pair, which rose by 25 points. I think one of the main reasons for this is that positive risk sentiment supports high-yield currencies. Another reason is that Japanese yields were declining faster compared to other major currencies, as recent market volatility in Japan has reduced the likelihood of further rate hikes by the BoJ.
Investors have absorbed that market sentiment weakened slightly in August due to weak demand from China. Traders continued to assess the BoJ’s monetary policy outlook amidst recent market fluctuations, especially after a former BoJ official indicated that the central bank would not be able to raise interest rates again this year due to financial market disruptions. This is also one of the factors supporting the current rise of the USD/JPY pair.
Technical analysis of USD/JPY prices
The USD/JPY pair has breached the upper limit of the Bollinger Bands on the 4-hour price chart, indicating a strong bullish dominance in the short to medium-term. Additionally, the Relative Strength Index (RSI) remains steady at 70, which reinforces the bullish outlook.
In the near term, the bullish trend may remain above the pivot level at 148.73. The first resistance level for the price is 149.10. If this level is breached, the price could gain momentum and test 149.50 in the near term. Conversely, a decline below 148.73 could signal a return to a downtrend. Should the downward momentum extend below this level, technical support might emerge at 148.20. If the decline continues and breaks below this level, the bullish scenario would be invalidated. The decline could then extend to test the major support level at 147.85 in the medium term.
Yen – USD/JPY – Prices Chart MT4 –-XS.com
From a deeper perspective, on the daily chart, the USD/JPY pair appears to be in a neutral position with a bearish bias. The upward momentum could strengthen if the price moves towards resistance levels at 149.60 and 150.70, respectively. The performance of USD/JPY will remain cautious of any signals from global central bank officials and investor risk appetite throughout Friday.
The pair is consolidating below the broken major trendline at the 148.00 level. The bearish momentum is likely to increase around the broken trendline, potentially extending towards the 140.00 level in the long term. Conversely, the price needs to stay above the trendline to gain further bullish momentum and target higher levels.
On the 4-hour chart, bearish momentum may gain strength around the 149.00 level, where the broken ascending trendline meets the immediate descending trendline. For the bullish trend to gain traction, the price needs to remain above this level to strengthen the upward momentum and reach new highs.
In the short term today, on the hourly chart, we can see consolidation and a sideways trend between support at 148.72 and resistance at 149.38. A break and hold above this level could initiate a bullish wave towards the trendline and a breakout above it. Conversely, a decline below and sustained under the support level would signal a bearish move towards 147.60. The red lines on the chart above indicate the average daily range for today’s trading.
Support Levels: 148.50 – 147.30 – 146.70
Resistance Levels: 149.87 – 150.50 – 151.60
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