Title: USD/JPY Uptrend Shows Signs of Fatigue but Maintains Overall Bullish Momentum
Source: Original article by EconoTimes, “FxWirePro: USD/JPY uptrend loses steam, remains on bullish path”
The USD/JPY currency pair has demonstrated a strong upward trend in recent weeks, driven primarily by strengthening US economic data and widening interest rate differentials. However, recent trading sessions have shown the pair losing some momentum, raising questions about the sustainability of the current bullish trajectory. Despite this slowdown, technical and fundamental indicators continue to support a bias toward higher levels in the medium term.
This comprehensive analysis delves into the reasons behind the pair’s recent movements, the economic drivers at play on both sides of the Pacific, and technical chart signals that traders and investors should closely monitor.
I. Recent Price Movement and Technical Overview
– The USD/JPY pair has been on a solid upward path, largely driven by a strengthening US dollar and continued monetary policy divergence between the Federal Reserve and the Bank of Japan (BoJ).
– Despite this, recent price action indicates a temporary loss of steam, with the pair encountering resistance near key psychological levels.
– At the time of writing, the USD/JPY trades around the 132.00 to 133.00 region, slightly below recent highs.
– Short-term consolidation below resistance levels suggests that the market may be preparing for the next move.
Technical Analysis Summary:
– RSI (Relative Strength Index) on the daily chart shows the pair in overbought territory, suggesting caution for aggressive buyers.
– MACD (Moving Average Convergence Divergence) histogram shows a narrowing convergence, hinting at loss of upside momentum.
– Price action remains above the 21-DMA (Day Moving Average) and the 55-DMA, reinforcing an overall bullish structure.
– A decisive close above 133.00 is needed to reignite bullish momentum, with next resistance levels seen at 134.00 and 135.50.
– On the downside, immediate support lies around 131.50 and further at 130.20, which also aligns with the rising trendline support.
II. Fundamental Drivers: United States Economy and Federal Reserve Policy
The US economy remains a critical driver for USD/JPY movement. Robust economic indicators in recent weeks have led to speculation that the Federal Reserve may continue on a tightening path longer than previously anticipated.
Key US Economic Indicators Driving Strength:
– Non-farm payrolls (NFP) have consistently exceeded expectations, showing resilient labor market conditions.
– Inflation, as measured by the Consumer Price Index (CPI), remains elevated though it has slightly moderated.
– Retail sales and consumer confidence indicators show robust consumer activity.
– US Treasury yields have risen in response to heightened interest rate expectations.
Federal Reserve Stance:
– The Federal Reserve has indicated that combatting inflation remains its top priority.
– Market participants expect at least one or two more 25 basis point hikes in upcoming meetings if inflation does not cool significantly.
– Rising yields on the 2-year and 10-year US Treasuries bolster the dollar’s attractiveness, indirectly supporting USD/JPY.
III. Yen Weakness Persists: Bank of Japan Sticks to Ultra-Loose Policy
While the dollar remains supported by a hawkish Fed, the Japanese yen continues to lag amid the Bank of Japan’s (BoJ) commitment to maintaining its ultra-accommodative monetary policy.
Contributing factors to yen weakness include:
– The BoJ has resisted global trends of policy tightening, maintaining massive quantitative easing and negative interest rates.
– Yield curve control (YCC) measures, which cap yields on Japanese government bonds, reduce the yen’s attractiveness for foreign investors.
– Core inflation in Japan has started to pick up, but the BoJ maintains that wage growth and consumption need to firm before policy normalization.
Governor Haruhiko Kuroda has reiterated that Japan’s economy still requires support and that sharply tightening policy could derail the fragile recovery. As a result
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