Weekly Outlook on USD/JPY – Source: Action Forex, Written by ActionForex.com
The USD/JPY currency pair continued to exhibit a strong bullish momentum last week, with the price extending recent gains to reach levels not seen since the early 1990s. The rally was fueled by the sustained divergence in monetary policy between the U.S. Federal Reserve and the Bank of Japan, along with resilient U.S. economic data reinforcing the dollar’s strength. As of the latest update, the pair reached a high of 160.12 before pulling back slightly.
This article provides a comprehensive weekly outlook for USD/JPY, analyzing the technical setup, momentum indicators, fundamental influences, and potential trajectories for the upcoming trading sessions.
Strong Weekly Performance Continues
– USD/JPY opened the week on a strong note and continued its upward trajectory from the start, breaching the psychological resistance at 160.00 for the first time since 1990.
– The U.S. dollar remains supported by expectations that the Federal Reserve will maintain a hawkish stance to combat inflation, while the Bank of Japan maintains ultra-loose monetary policy.
– The pair closed the week slightly below 160.00, at around 159.75, with only limited signs of fatigue emerging.
Key Support and Resistance Levels
From a technical analysis standpoint:
– Immediate resistance lies at the psychological level of 160.00. A firm break above this threshold could open the door for further upside toward 163.85, which corresponds to the 61.8% projection of the rise from 140.25 to 158.25, measured from the subsequent dip to 151.71.
– On the downside, the initial support level lies at 157.70, corresponding to the near-term rising 10-day simple moving average (SMA).
– A break below 157.70 would indicate a potential short-term reversal and could pave the way to deeper retracements. The next notable support is around 155.50, where the 20-day SMA resides.
– A decisive break below 155.50 would likely suggest that the rally has run its course for now, and the focus could shift toward the 151.71 near-term bottom.
Technical Indicators Highlight Bullish Conditions
Examining key momentum indicators:
– The daily Relative Strength Index (RSI) is trading close to overbought territory, indicating strong upward momentum but also highlighting risks of a potential short-term pullback.
– MACD (Moving Average Convergence Divergence) remains in bullish territory with its histogram widening, confirming the continuation of the uptrend.
– The Bollinger Bands have widened, signaling increased volatility. Yet, price action is hugging the upper band, further confirming the bullish pressure on the pair.
Long-Term Trend Still Favoring Bulls
From a broader perspective:
– The weekly and monthly charts show a solid uptrend throughout 2023 and into 2024. This trend has been underpinned by monetary policy divergence and broader macroeconomic dynamics between the U.S. and Japan.
– The pair’s price remains firmly above all major moving averages, including the 20-week, 50-week, and 100-week SMAs, reinforcing the long-term bullish momentum.
– On the monthly chart, 160.00 marks a key long-term resistance level. A successful break above this can lead to a test of 163.85, followed by the possibility of a movement toward the historical high of 169.96 seen in 1990.
– However, traders should remain cautious due to the potential for government intervention. Japanese officials have publicly expressed discomfort with the rapid depreciation of the yen.
Intervention Risk from Japan
One key risk factor that traders must keep in mind is the threat of direct intervention by Japan’s Ministry of Finance (MoF) or verbal intervention by the Bank of Japan. As the pair trades near historically high levels:
– Senior Japanese officials have stated that extreme one-sided yen weakening is not desirable for
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