Title: USD/JPY Under Pressure as Bullish Momentum Stalls Below March High
Source: Originally published by David Song via Forex.com
The USD/JPY pair has shown increasing signs of weakness, with bearish price action taking hold following the failure to sustain a breakout above the March high. This momentum shift is further compounded by broader macroeconomic indicators and signals from both technical and sentiment-driven frameworks. As the U.S. dollar grapples with fluctuating yields and shifting Federal Reserve expectations, the Japanese yen is regaining a measure of traction, pushing the pair lower after a strong upward trend in previous months.
Author: David Song
Original Source: Forex.com (https://www.forex.com/en/news-and-analysis/usd-jpy-reflects-bearish-price-series-amid-failed-test-of-march-high/)
Overview
– The USD/JPY currency pair has begun to unwind gains after repeatedly failing to close above the March high near the 151.00 handle.
– A developing series of lower highs and lower lows point to an emerging bearish structure on the daily chart.
– Market participants are closely watching economic data and central bank commentary for signals on rate differentials, which continue to be the primary driver of this pair.
– While the Federal Reserve remains cautious about premature rate cuts, investors are beginning to price in the possibility of a monetary policy pivot later in the year.
– Japan’s fundamental backdrop has shown subtle improvements, with indications from the Bank of Japan (BoJ) suggesting possible policy normalization, or at least less accommodative stances, which could support the yen.
Technical Outlook
The recent rebound in USD/JPY failed to sustain above the March high, resulting in a technical rejection that could mark a shift in trend direction. A deeper analysis of the daily chart and key indicators reveals the following:
Daily Chart Observations:
– March high: The pair approached a critical swing high near 151.95 but failed to maintain momentum above this level, leading to multiple rejections and a bearish reversal.
– Lower highs and lower lows: Following the failed breakout attempt, the USD/JPY began forming a clear bearish sequence, which is often viewed as one of the foundational patterns pointing toward trend exhaustion.
– Bearish engulfing pattern: Between April and May, a bearish engulfing candlestick pattern reinforced a potential top. This pattern typically signals a strong reversal when appearing after a sustained rally.
Fibonacci Levels and Key Support Zones:
– 23.6% Fibonacci retracement (from January low to March high): Around 149.70, this level recently failed to act as a strong support.
– Next line of defense: The 38.2% retracement around 148.20 represents the next potential support level, and a decisive break below this line may further validate the bearish case.
– Near-term resistance: Former support around the 150.50 zone is now acting as resistance, and unless the pair clears this region, downside bias remains intact.
Momentum Indicators:
– Relative Strength Index (RSI): Previously holding above 50 during the uptrend, the RSI has now slipped below neutral territory. This shift suggests a weakening of bullish momentum and increases the probability of further downside.
– Moving Averages: The price dropping below the 21-day EMA reflects short-term pressure, while a potential test of the 50-day SMA looms if bearish trends continue.
Fundamental Drivers
Two major forces currently influence the USD/JPY trajectory: anticipation surrounding U.S. monetary policy and subtle shifts in Japan’s economic approach.
Federal Reserve Policy Expectations:
– The Federal Reserve’s stance has remained hawkish in the face of sticky inflation and a resilient labor market.
– However, several Fed officials have acknowledged growing uncertainty about the economic outlook, prompting financial markets to begin considering potential rate cuts later in the year.
– Treasury yields have become increasingly volatile, and yields on the 10-year note have recently declined, removing key support from the U.S. dollar.
Bank of Japan’s evolving
Explore this further here: USD/JPY trading.