Title: USD/JPY Shows Mild Pullback, But Overall Bullish Momentum Persists
Originally reported by EconoTimes
The USD/JPY currency pair experienced a slight retreat in recent sessions, pausing its recent rally against the Japanese yen. While such a pullback might raise concerns among short-term traders, a closer technical and fundamental analysis reveals that the overall bullish trend remains robust. Despite the minor downturn, current market signals, macroeconomic factors and technical indicators point towards a continuation of the upward trend in the medium to long term.
This analysis is based on the original report from EconoTimes, authored by the FXWirePro team. Below, we delve deeper into market trends, key levels, macroeconomic drivers and investor implications for the USD/JPY pair.
Current Market Overview
– The USD/JPY pair showed a minor pullback but is still holding above critical support levels.
– The pair is currently trading around the 134-135 level range.
– Short-term selling pressure has emerged, with some investors locking in profits after the recent surge.
– However, the retreat appears to be a temporary correction within a broader bullish structure.
Technical Analysis
From a technical perspective, the USD/JPY pair continues to trade above key moving averages, which is often interpreted as a sign of sustained bullish momentum.
Key indicators:
– 21-day Exponential Moving Average (EMA): The USD/JPY is currently trading above this line, indicating short-term bullish strength.
– 55-day EMA: Also supporting the current price action from below, adding to medium-term positive sentiment.
– MACD (Moving Average Convergence Divergence): The MACD line remains above the signal line, affirming the strength of the upward trend.
– RSI (Relative Strength Index): While the RSI is not massively overbought, it remains elevated above 50, suggesting continued bullish momentum.
– Support levels: Initial support lies at 133.50, with stronger support near 133.00.
– Resistance levels: The next major resistance can be seen around 135.50 and potentially up to 136.80 if bullish momentum continues.
These indicators suggest any pullbacks are likely to be shallow and temporary, providing buying opportunities for those looking to enter the market on dips.
Fundamental Drivers
The recent USD/JPY movement has been significantly influenced by a host of macroeconomic variables, which continue to underpin the bullish narrative. These include divergent monetary policies, inflation dynamics and safe-haven flows.
Key contributing macro factors:
1. Divergence in Monetary Policy
– U.S. Federal Reserve: The Fed remains committed to a relatively aggressive tightening policy stance. Interest rates have been hiked several times to combat inflationary pressures.
– Bank of Japan (BoJ): In contrast, the BoJ continues to maintain an ultra-loose monetary policy, keeping interest rates near zero or even in negative territory.
– This divergence supports a stronger dollar against the yen as interest rate differentials incentivize capital flows into the USD.
2. Inflation Trends
– United States: Inflation remains well above the Federal Reserve’s 2 percent target, reinforcing expectations that rate hikes will continue for the foreseeable future.
– Japan: Inflation remains muted, with the BoJ projecting only a modest rise in prices. The weak domestic inflation gives BoJ little reason to normalize monetary policy.
– The inflation gap leads to further depreciation in the yen as capital leaves lower-yielding Japanese assets.
3. Yield Differential
– U.S. Treasury yields continue to rise, with the 10-year yield hovering around 3.5 percent to 4 percent depending on market conditions.
– Japan’s 10-year government bond yield remains capped due to yield curve control policies implemented by the BoJ.
– The widening gap between Japanese and U.S. yields enhances the appeal of dollar-denominated assets among global investors.
4. Risk Sentiment and Geopolitical Tensions
– The Japanese yen often serves as a safe-haven currency during global market instability.
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Explore this further here: USD/JPY trading.