Original article by ActionForex (https://www.actionforex.com/technical-outlook/usdjpy-outlook/607574-usd-jpy-weekly-outlook-421/)
Rewritten and Expanded Article: USD/JPY Weekly Outlook
Introduction
The USD/JPY currency pair experienced a slight pullback over the past week, but the upward momentum remains largely intact. Despite profit-taking pushing the pair away from this cycle’s high at the 160.20 mark, the longer-term trend toward yen depreciation is yet to show any definitive signs of reversal. In the coming sessions, investors will closely monitor developments around U.S. monetary policy and Japanese central bank actions, which have recently diverged significantly.
Ongoing interest rate differentials, macroeconomic data, and central bank rhetoric are expected to drive USD/JPY’s trajectory heading into the second half of 2024.
Short-Term Outlook: Correction or Consolidation?
– USD/JPY edged lower last week but showed strong support around the psychological threshold of 157.50.
– The currency pair formed a brief descending correction after reaching its 34-year high near 160.20.
– Despite the week’s slight downside movement, downside momentum remains limited.
– The retreat appears more like a consolidation phase than the beginning of a major reversal.
Technical Highlights
– Initial resistance lies near the 160.20 multi-decade high.
– Support is seen around 156.70 (the 55-day EMA) followed by 155.00 and stronger backing around 151.88.
– The weekly RSI (Relative Strength Index) suggests the market was mildly overbought but remains in bullish territory.
– Momentum indicators, while softening slightly, still favor the bulls in the medium- to long-term horizon.
Possible Scenarios for the Coming Week
– If USD/JPY breaks above 160.20, the next resistance could be seen around 162.00 with scope for further appreciation.
– On the downside, should the pair fall below 156.70, we could witness extended corrections toward 155.00 or possibly 151.88.
– However, continued support from U.S. bond yields and persistent rate differentials are likely to keep the downside limited unless significant intervention occurs.
Fundamental Analysis
Diverging Monetary Policies
– The Federal Reserve has maintained a cautious but firm hawkish tone. Despite moderating inflation trends, the Fed has indicated it is not in a rush to slash rates.
– U.S. economic data, including labor market figures and inflation metrics, continue to demonstrate resilience. This supports a higher-for-longer outlook for U.S. interest rates.
– In contrast, the Bank of Japan remains dovish, implementing relatively loose monetary policy and resisting aggressive tightening steps.
– Although Japan ended negative interest rates earlier this year, it has refrained from large-scale monetary tightening. This has widened the policy divergence that fuels capital outflows from Japan to higher-yielding economies like the United States.
Intervention Speculation
– Japanese authorities intervened in April 2024 to support the yen by selling dollars when USD/JPY hovered around the 160.00 mark.
– Following this, the pair saw a sharp but temporary drop as traders hesitated to push above the intervention-trigger level again.
– However, Japan’s Ministry of Finance has remained relatively quiet regarding additional intervention, possibly signaling tolerance for a weaker yen up to a certain level.
– There is ongoing speculation that intervention will only become likely if the exchange rate surges beyond 160.20 or exhibits excessive volatility.
Key Macro Data to Watch This Week
1. U.S. Economic Releases:
– CPI Inflation (YoY & MoM): If U.S. inflation prints higher, expectations for Fed rate cuts may be pushed further, boosting USD.
– Retail Sales Data: A healthy consumer sector could support GDP growth and, by extension, U.S. dollar strength.
– FOMC Member Speeches: Policymakers’ statements
Explore this further here: USD/JPY trading.