Title: USD/JPY Weekly Outlook: Sustained Bullish Momentum Amid Consolidation
Original Author: ActionForex.com
The USD/JPY currency pair exhibited signs of stabilization last week after a period marked by intense volatility. The pair retreated slightly from its recent highs, establishing a temporary top at 157.70. The pullback, however, is considered to be part of a short-term consolidation phase within a broader bullish framework. The prevailing trend retains an upward bias, and further advances remain probable unless structural support levels are breached.
Short-Term Technical Overview
USD/JPY dipped to a weekly low of 154.53 before finding support and closing the week at 156.79. Despite the temporary setback, the overall technical structure remains bullish. The pair is holding firmly above key moving averages, and momentum indicators do not yet signal an imminent trend reversal.
Key technical points:
– Temporary top appears established at 157.70, which could cap gains in the short term
– The pair remains conclusively above its 55-day Exponential Moving Average (EMA), keeping the bullish momentum intact
– Fibonacci retracements and previous resistance levels are offering support near the 154.50 area
Should USD/JPY break below 154.53, a deeper retracement could unfold. The corrective phase may initially target the 38.2% Fibonacci retracement level at 152.79, which corresponds to the move from 146.47 to 157.70. However, this scenario would be considered corrective unless the decline extends below the 151.86 mark, the support level formed earlier in April.
Fundamental Analysis and Market Drivers
Numerous economic and geopolitical factors are maintaining upward traction for the U.S. Dollar against the Japanese Yen. The wide interest rate differential between the United States and Japan continues to define the pair’s fundamental direction.
Key fundamental drivers impacting USD/JPY:
– The Federal Reserve remains hawkish, with U.S. interest rates holding at elevated levels. The possible delay in rate cuts supports ongoing USD demand.
– In contrast, the Bank of Japan sustains its ultra-loose monetary policy, refraining from aggressive tightening measures. Interest rates remain near-zero or negative, perpetuating the yield divergence.
– Robust U.S. economic indicators, including labor market strength and resilient consumer spending, bolster the Fed’s cautious stance on early rate cuts.
– Meanwhile, inflation in Japan has shown marginal upticks, but not enough to prompt meaningful policy changes.
The divergent monetary paths between the Fed and BoJ keep appetite strong for the U.S. dollar among global investors. Treasury yields continue to favor the dollar, while Japanese yields are effectively anchored by central bank policy.
Risk Factors to Watch
Despite the continued uptrend, risks to the forecast are present and must be monitored.
– A sudden downturn in key U.S. economic indicators could force the Federal Reserve to reevaluate lift-off timelines, weakening the dollar.
– Intervention threats from Japanese authorities could cast volatility across the pair, especially if yen depreciation becomes politically untenable.
– Global geopolitical tensions, particularly in Asia or the Middle East, could spark safe-haven flows into the yen, temporarily reversing recent trends.
Traders should approach USD/JPY with caution in such cases, as these factors can result in short periods of erratic movement and retracements.
Medium-to-Long-Term Outlook
The long-term trend for USD/JPY continues to lean bullish. The pair has successfully broken through various psychological resistance levels in recent months, transitioning from the 150.00 area toward new multi-decade highs. The momentum is being supported not only by monetary policy divergence but also by consistent institutional support.
Wave Analysis:
Looking at the medium/long-term Elliott Wave structure:
– Current price action is assessed to be part of an impulsive wave pattern that commenced at 127.20
– The structure is potentially unfolding as wave (5) of a rally from 102.58, which initially began in January 2021
Explore this further here: USD/JPY trading.