Title: USD/JPY Weekly Technical Analysis – Extended Rally Faces Tougher Resistance
Original source: ActionForex.com
Author: ActionForex.com Team
Link: https://www.actionforex.com/technical-outlook/usdjpy-outlook/610916-usd-jpy-weekly-outlook-425/
Overview:
The USD/JPY pair maintained its upward trajectory throughout the recent trading sessions, demonstrating strong bullish momentum. The primary driving forces include continued gains in U.S. Treasury yields and diverging monetary policy paths between the Federal Reserve and the Bank of Japan (BoJ). Despite hitting short-term resistance levels, the pair’s outlook remains bullish, backed by technical indicators and broader macroeconomic dynamics.
Key Highlights:
– USD/JPY advanced substantially last week, reaching as high as 157.70 before facing minor pullback pressures.
– The pair posted its sixth consecutive weekly gain, underscoring sustained buying interest.
– Despite some overbought conditions, the trend remains decisively upward unless key support levels are breached.
Price Action Review:
Last week, the USD/JPY pair opened near 155.00 and quickly rose, breaking through a range of resistance levels. With buyers firmly in control, price surged to 157.70 before closing the week slightly below highs. Despite temporary profit-taking and moderate consolidation, bulls remained dominant.
– Weekly high: 157.70
– Weekly low: 155.03
– Weekly close: 157.48 (approx.)
Technical Indicators and Chart Patterns:
Daily Chart Observations:
– RSI (Relative Strength Index): Hovering around 70, indicating overbought conditions. However, the overbought status alone does not guarantee a correction, especially in strong trend environments. Sustained strength of RSI above 60 in the daily chart supports the bullish bias.
– MACD: The Moving Average Convergence Divergence histogram remains bullish, with the signal line above zero and increasing in size, suggesting upside momentum remains intact.
– Price is trading well above the 20-day and 50-day moving averages, both of which are sloping upward, confirming short to medium-term bullish alignment.
Weekly Chart Insights:
– Long-term resistance from the 2022 high at 151.94 has now become intermediate support.
– The area around 160.00 marks a critical psychological and technical resistance zone, considered a mid to long-term barrier.
– Bollinger Bands are widening with price riding the upper band, consistent with strong upward trends.
Fibonnaci Extensions:
When plotting a Fibonacci extension from the 146.47 (March low) to the 157.70 (recent high), possible bullish targets project toward the following zones:
– 161.8% extension: ~160.25
– 200% extension: ~162.00
These figures align with projected resistance areas and may represent areas of high profit-taking or possible trend reversal.
Trendline Analysis:
– An ascending trendline drawn from the January 2024 low continues to provide dynamic support. A break below this trendline could signal a loss in short-term bullish momentum.
– Trendline support currently rests around 154.50 and rises gradually each day.
Fundamental Drivers Supporting USD/JPY Rally:
1. Interest Rate Differential:
– The U.S. Federal Reserve remains in a “higher for longer” stance due to persistent inflation pressures, with policymakers unwilling to commit to near-term rate cuts.
– In contrast, the Bank of Japan has been extremely cautious in its policy normalization despite exiting its negative rate regime earlier this year.
– This continued divergence maintains upward pressure on USD/JPY due to carry trade dynamics.
2. Bank of Japan’s Dovish Posture:
– BoJ officials have emphasized the need for long-term policy support amid subdued domestic inflation.
– With wage growth and consumption data from Japan showing limited inflationary pressures, the Japanese central bank appears unlikely to tighten further in the immediate future.
3. U.S. Economic Data
Explore this further here: USD/JPY trading.