**USD/JPY and GBP/USD Face Renewed Selling**
*By Fawad Razaqzada, originally published on Investing.com*
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In recent sessions, the foreign exchange market has shown renewed selling pressure on two important currency pairs: the US Dollar/Japanese Yen (USD/JPY) and the British Pound/US Dollar (GBP/USD). Mounting economic data, shifting monetary policy expectations, and the technical set-up all underscore the volatility ahead. Traders are recalibrating their positions as policy divergences become more pronounced and fundamental catalysts come into focus. Below, we will break down the factors contributing to the bearish sentiment in both USD/JPY and GBP/USD, informed by technical analysis and the sentiment expressed by Fawad Razaqzada in the original article.
## USD/JPY: Renewed Downside Risks
### 1. BoJ Policy Normalization Looms
– The Bank of Japan (BoJ) has long maintained a dovish stance, keeping interest rates extremely low, but recent hints signal a potential shift.
– BoJ Governor Kazuo Ueda and policymakers have been alluding to a possible exit from negative interest rate territory as inflation becomes more entrenched in Japan.
– Wages in Japan are finally showing signs of growth, with a notable uptick in scheduled wage increases, stirring expectations for a change in the policy rate as soon as the Q2 or even in the coming months.
### 2. US-Japan Yield Differential Shrinks
– Yield differentials between US bonds and Japanese government bonds (JGBs) have narrowed as US Treasury yields dropped in response to softer US inflation and labor market data.
– If BoJ tightens or even hints at normalization, the yield gap would shrink further, diminishing the attraction of the yen-funded carry trade.
### 3. Technicals Point to Pressure
– Key resistance is firmly established at around 150.80-151.00, a zone that topped out previous rallies and sparked intervention talk from Japanese authorities earlier this year.
– Bearish divergence is evident on the daily RSI (Relative Strength Index), suggesting waning upside momentum.
– Price action shows a distinct lower high pattern, setting up the pair for potential continuation lower.
### 4. Intervention Threat Remains
– The Japanese Ministry of Finance remains sensitive to sharp yen weakness, which impacts import costs and consumer sentiment. Despite not announcing intervention, traders remain wary, keeping a ceiling on USD/JPY rallies.
– Speculators are cautious about overstaying long positions near intervention levels from 2022 and 2023.
### 5. The Upcoming Test
– The pair traded down aggressively following US CPI and PPI announcements, both of which underwhelmed expectations and caused the dollar to drop broadly.
– As major support around 146.50 is vulnerable, a decisive break could trigger further selling, targeting the 145.00 region and possibly lower towards early year lows.
## GBP/USD: Sterling’s Struggle Deepens
### 1. Weaker UK Data Dampens Hopes
– The UK economy contracted by 0.3 percent in the last monthly GDP reading, raising fears over stagflation or a mild recession.
– Recent retail sales, industrial production, and services sector figures have all disappointed, underlying weak momentum.
– Wage growth is cooling, and inflation, while still elevated, is showing a disinflationary trend, prompting market participants to bring forward expectations of Bank of England (BoE) rate cuts.
### 2. Policy Divergence With US Shrinks
– The US Federal Reserve is expected to deliver rate cuts later in 2024, but it is widely viewed as being better positioned economically compared to the United Kingdom.
– The narrowing gap between the timing of Fed and BoE moves lessens sterling’s attractiveness, especially as the UK faces worsening economic indicators.
### 3. Technical Analysis Favors Bears
– GBP/USD rally stalled around 1.2800-1.2850
Read more on GBP/USD trading.