Original Author: ActionForex.com
Title: USD/JPY Mid-Day Outlook Analysis – Extended Rally Faces Temporary Resistance but Uptrend Remains Intact
Current Market Picture
The USD/JPY pair continues to display notable strength in intraday trading, extending its ongoing uptrend. The pair has surged past the 158.00 psychological level, maintaining bullish momentum since early trading sessions. The price action validates a sustained bullish bias in the near-to-medium term. This trend aligns with recent macroeconomic indicators and central bank messaging, particularly disparities in policy stance between the Federal Reserve and the Bank of Japan.
Resistance appears to be developing near the 158.22 level, which represents a minor pause in the pair’s broad rally. However, the broader uptrend structure remains solid, signaling the potential for renewed momentum and further highs.
Short-Term Technical Outlook
– The USD/JPY pair stays well-supported above recent moving average levels, underpinning bullish action.
– An initial resistance level has formed at 158.22, capping today’s rally in the short term.
– A break above this resistance will likely confirm the continuation of the current uptrend.
– Intraday bias remains bullish as long as the USD/JPY holds above the short-term support near 156.78.
– A sustained break above 158.22 could open the path towards the 160.00 area, a key psychological and technical level.
On the downside:
– A decisive break below 156.78 could indicate that a short-term top has formed at 158.22.
– In that case, minor consolidation or a corrective pullback may follow.
– The nearest support zone lies around the 155.50 range, offering the next area of interest if bearish pressure increases.
Medium-Term View and Structure
The broader structure of the USD/JPY rally remains constructive. Technical patterns since the beginning of the year suggest a strong uptrend within a well-defined channel. Key elements supporting this trend include:
– Interest rate differentials: The Federal Reserve maintains a restrictive monetary policy stance, whereas the Bank of Japan continues its ultra-loose approach, widening the policy divergence.
– Inflation and economic indicators in the US point to above-target inflation, which supports a stronger greenback.
– Japanese authorities have intervened verbally in recent weeks, but no decisive currency action has altered the overall bullish bias in the pair.
From a medium-term perspective:
– As long as the 151.86 support (March 2024 low) remains intact, the broader bullish case for USD/JPY stays valid.
– The pair is advancing within a rising structure, with successive higher highs and higher lows confirming the trend.
– Target projections based on Fibonacci extension suggest upside towards 161.80 in the coming weeks or months.
Fundamental Factors Supporting USD/JPY Growth
Divergence in monetary policy is a key driver of the recent rally. Several fundamental elements continue to support the appreciation of the USD over the JPY. These include:
– Federal Reserve stance: Fed officials have reiterated a wait-and-see approach regarding rate cuts, stressing persistently high inflation and strong labor market figures.
– Bank of Japan’s policy: The BoJ has demonstrated reluctance to abandon negative interest rates decisively. Market watchers expect gradual adjustments, which provides little support for the yen.
– Yield differential: US Treasury yields are significantly higher compared to Japanese government bonds (JGBs), making USD a more attractive asset for investors.
– Geopolitical environment and risk sentiment: In times of global economic uncertainty, USD continues to pull in safe haven demand, while JPY’s traditional role as a safe haven has been muted.
Speculative Considerations and Positioning
According to recent data from the Commitment of Traders (COT) report:
– Net long positions in the US dollar have increased, indicating broad-based demand among traders and institutions.
– Speculative short positions in the Japanese yen remain elevated, suggesting market participants expect continued yen weakness.
Institutional and hedge fund demand mirrors the trend
Explore this further here: USD/JPY trading.