Original article credit: Action Forex – “USD/JPY Weekly Outlook”
Rewritten and expanded version:
USD/JPY Weekly Outlook – Technical and Fundamental Analysis
Overview
The USD/JPY currency pair exhibited further strength last week, climbing above prior resistance levels and posting new medium-term highs. The upward momentum continues to reflect underlying fundamentals such as diverging monetary policies between the Federal Reserve and the Bank of Japan. Despite occasional pullbacks and brief consolidations, bullish momentum remains robust in both short and longer-term views. The focus now shifts toward potential resistance points and retracement opportunities, as traders prepare for key economic events and central bank policies in upcoming sessions.
Technical Analysis
The pair rallied impressively last week, moving from under 154.00 to set new highs above 156.00. This continuation of the uptrend has reaffirmed the prevailing bullish structure that has been evident in the weekly and monthly charts since early 2023.
Key Technical Observations:
– Price surged past the 156.00 barrier, registering weekly highs that hadn’t been seen since the early 1990s.
– Despite concerns around intervention by Japanese authorities, there was no confirmed direct action, and markets continued to buy USD/JPY amid strong US data.
Week in Review:
– After a modest retracement early in the week, buyers stepped in aggressively around the 154.00 handle, driving the pair higher.
– The upward push culminated in the pair not only closing above 156.00 but also establishing that region as a new support zone.
– Momentum indicators such as the Relative Strength Index (RSI) remain elevated, consistent with a strong uptrend, though nearing overbought territories on higher timeframes.
Looking Ahead – Near Term Forecast
The immediate concern for traders is whether the recent break above 156.00 can be sustained or if a corrective pullback is in the cards. From a technical standpoint, the rally appears extended in the short term, and a minor pullback may offer better entry points for buyers.
Short-Term Scenarios:
– Bullish Continuation: If USD/JPY consolidates above the 156.00 support level, the next resistance lies around 158.00, followed by 160.00. These represent psychological levels, as well as potential intervention zones.
– Pullback Risk: A pullback toward the 154.00 or even the 152.00 level is possible if traders book profits or if there is an unexpected shift in risk sentiment.
– Support Zones to Watch:
– Immediate support is now pegged at the 155.00 region.
– Further support exists near 154.00, where the pair previously found demand.
– Key support sits at the 151.86 area, the previous swing high that had served as resistance before the breakout.
Medium to Long-Term Outlook
The broader uptrend remains well-intact, fundamentally supported by policy divergence between the Bank of Japan and the US Federal Reserve. While the BoJ remains committed to its ultra-loose monetary policy, the Fed maintains a more hawkish bias. This divergence in yield differentials continues to act as a tailwind for USD/JPY.
Key Factors Supporting Long-Term Bullish Bias:
– Yield Differentials:
– 10-year US Treasury yields remain significantly higher compared to their Japanese counterparts.
– Federal Reserve officials remain cautious about inflation, indicating that rate cuts, although on the radar, are unlikely in the very near term.
– Bank of Japan Policy:
– The BoJ has shown signs of allowing yields to rise modestly, but it is far from tightening policy significantly.
– Governor Kazuo Ueda indicated a willingness to maintain supportive conditions until wage growth and inflation expectations become more stable.
– Potential Terminal Rate:
– Traders are speculating that the Federal Funds rate may remain at elevated levels for longer than previously expected.
– This scenario favors a continued appreciation of the USD relative to JPY.
Fibonacci and Trendline Analysis
Explore this further here: USD/JPY trading.