USD/JPY Mid-Day Outlook – Extended Analysis
Original Source: ActionForex (Author: ActionForex.com)
As of today’s trading session, USD/JPY holds a consolidative pattern following a short-term pullback, yet the broader trend framework remains intact. The pair appears to be in a corrective movement after recently hitting multi-decade highs. Traders and analysts alike are keenly observing current price behavior for clues regarding the next directional push. Here’s a deeper and extended look at the technical and fundamental landscape currently shaping the USD/JPY pair.
Key Technical Observations
– USD/JPY continues to trade within a strong medium to long-term uptrend, with higher highs and higher lows consistently printed over the past few weeks.
– Recent softness observed in early Asia and European sessions suggests a temporary pullback, rather than a complete trend reversal.
– Price action has stabilized above key support zones, indicating that buyers are still firmly present in the market.
– Immediate resistance is placed around 157.70. Clearing this area would resume the uptrend and could push the pair beyond the 160.00 psychological level.
– On the downside, support sits at 151.86, a level that was previously a resistance and now acts as a potential floor.
– A break below this support would shift near-term focus to the 55-day Exponential Moving Average (EMA), now positioned around 151.32.
– Sustained pressure below these levels may signal a deeper correction; however, broader bullish momentum remains intact unless a major structural breakdown occurs.
Short-Term Momentum
– The pair’s recent rally lacked follow-through after testing highs around 157.70, stalling as selling interest emerged.
– The Relative Strength Index (RSI), currently hovering close to overbought territory on the 4-hour and daily charts, supports a period of sideways consolidation or a mild pullback to digest gains.
– MACD histograms show decreasing momentum on shorter time frames, indicating buyer enthusiasm is waning in the immediate term.
– The daily candlestick structure suggests the formation of a possible short-term top around recent peaks.
Key Levels to Watch
Support Levels:
– Immediate: 151.86 (previous resistance, now support)
– Intermediate: 151.32 (55-day EMA)
– Lower: 150.00 (round number psychological level)
Resistance Levels:
– Immediate: 157.70 (multi-decade high)
– Higher: 158.20 (projected Fibonacci extension)
– Long-Term Target: 160.00 (psychological resistance, next potential projection)
Fundamental Drivers Moving the Pair
The USD/JPY pair largely reflects diverging monetary policy paths of the US Federal Reserve and the Bank of Japan. These macro dynamics are key to understanding the persistence of yen weakness and dollar dominance.
Federal Reserve Policy Outlook:
– Recent US data, including stronger-than-expected labor market reports and inflation readings, has tempered market expectations for rate cuts in 2024.
– Federal Reserve officials continue to voice cautious commentary, emphasizing the need for more data before adjusting rates.
– As a result, US yields, particularly on the 2-year and 10-year Treasury notes, remain elevated, supporting the dollar broadly.
– Higher yields contribute to an increased interest rate differential between the US dollar and Japanese yen, further propelling USD/JPY upward.
Bank of Japan Monetary Policy:
– Although the Bank of Japan made its first rate hike since 2007 earlier this year, its overall stance remains significantly more accommodative than other major central banks.
– Japanese inflation indicators have shown signs of improvement, but remain below the BoJ’s target sustainably.
– Market expectations suggest the BoJ may move cautiously in 2024, possibly lifting rates again only modestly or even pausing for the rest of the year.
– This policy asymmetry has kept downward pressure on the yen, particularly as traders seek carry trade opportunities using low-yielding yen
Explore this further here: USD/JPY trading.