Original article credit: James Hyerczyk, Forex.com
USD/JPY Tests 200-Day Moving Average Support Following Retreat from 150
The USD/JPY currency pair, which had recently been trading above the 150.00 level in early 2024, has demonstrated signs of retracement as it now tests its 200-day moving average (DMA) for support. After a firm rally that took the pair from the lows of 2023 into a recent high just above 150.00, the potential for a shift in momentum has now become a focal point for investors and technical analysts alike.
Below is a detailed analysis of the current situation surrounding USD/JPY, along with a look at the broader implications for JPY pairs including EUR/JPY.
Key Market Developments Driving USD/JPY Movements
Several macroeconomic factors have been central to the latest shift in USD/JPY:
– The resurgence of the Japanese yen (JPY) in recent weeks suggests that cautious sentiment around intervention, rising inflation expectations in Japan, and shifting yield dynamics are beginning to impact price action.
– U.S. Treasury yields have shown signs of topping, reducing the upside support for the greenback.
– The U.S. dollar saw impressive strength throughout the second half of 2023 as traders priced in a prolonged rate hike cycle from the Federal Reserve. However, broader market sentiment is gradually pivoting toward potential rate cuts in 2024.
– Officials from the Bank of Japan (BoJ) continue to make comments that hint at possible policy normalization, although timing remains vague.
USD/JPY Technical Picture: 200-Day SMA Under Severe Test
The recent pullback in USD/JPY has brought it back to a strategic technical level — the 200-day simple moving average (SMA). This widely watched indicator often marks critical turning points in trends.
Here’s an overview of the technical outlook:
– USD/JPY reached a cycle high just above 150.00 earlier in 2024, a level that historically invites caution due to prior episodes of Japanese government intervention.
– The move lower now targets the 200-day SMA near the 146.00 region.
– A sustained break below the 200-day SMA could open the door to further downside potential, possibly targeting the 145.00 level or deeper, depending on the momentum.
– Momentum indicators such as RSI have rolled over from overbought territory, signaling potential continued corrective movement.
– Trendline support from the January 2023 lows is currently around the same level as the 200-day moving average, suggesting a confluence of support that must hold for the bullish trend to resume.
Sharp Rebound in the Japanese Yen Driven by Fresh Market Dynamics
The yen’s revival, particularly in the second half of February and early March 2024, was spurred by both domestic and global forces. Key among them:
– Rising expectations that the BoJ will end its ultra-loose monetary policy as inflation becomes more stable above its 2% target.
– Relatively hawkish commentary from several BoJ officials, including hints that wage growth data due soon could significantly influence the path of policy normalization.
– A narrowing gap between U.S. and Japanese yields, especially as traders pull forward the timing of potential Fed rate cuts, has made the dollar less appealing versus the yen.
– Traditional safe-haven flows have occasionally supported the yen amid geopolitical uncertainties and volatile equity markets in early Q1 2024.
JPY Intervention Concerns Hover Near 150 Levels
The psychological impact of the 150.00 level cannot be overstated. Historically, this level has marked intervention positions by Japan’s Ministry of Finance and the BoJ.
– The October 2022 and November 2023 interventions to limit yen depreciation occurred near the 150.00 level.
– Traders have grown cautious near this threshold, prompting sharp sell-offs whenever this level is in proximity.
– By retreating from 150.00, the current move in USD/JPY appears, in
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