Title: USD/JPY Slows but Maintains Bullish Outlook Despite Recent Consolidation
Author Credit: Based on the original article by FxWirePro, published at EconoTimes
The US dollar (USD) has shown signs of losing momentum against the Japanese yen (JPY), but technical indicators and macroeconomic fundamentals continue to point toward a bullish outlook for the currency pair. USD/JPY has entered a consolidation phase, which could be a healthy pause before continued upward movement.
The pair has recently traded in a narrow range following an extended rally that saw USD/JPY climb to multi-decade highs. Despite the recent stalling, analysts remain confident in the overall uptrend due to the divergence in monetary policies between the Federal Reserve and the Bank of Japan (BoJ), along with strong US economic indicators. This divergence supports a long-term bullish bias for the greenback against the yen.
Technical Analysis
The current price action on the charts suggests that momentum has weakened in the short term, although the broader picture supports continued upside.
Key technical observations:
– The pair has dropped below the 10-day Exponential Moving Average (EMA), indicating minor bearish pressure in the short term.
– However, USD/JPY continues to trade comfortably above the 21-day and 55-day EMA levels, signaling that the medium-to-long-term trend still favors bulls.
– A minor support lies at 134.35, with further downside movement capped at 133.80, which coincides with the 21-EMA support zone.
– On the upside, resistance stands at 135.60 (recent high), and breaking above this level could confirm the continuation of the bullish trend.
– The Relative Strength Index (RSI) remains above 50, although showing signs of weakness, indicating the possibility of near-term consolidation.
– The MACD (Moving Average Convergence Divergence) lines are beginning to converge, which supports the idea that the pair could be entering a period of range-bound movement before another potential breakout.
Price Action Summary:
– Pair: USD/JPY
– Prev Close: 135.06
– Bid Price: 134.71
– Ask Price: 134.74
– Daily High: 135.18
– Daily Low: 134.33
– Daily Range: 85 pips
– Trend: Consolidation with bullish bias
– Support: 134.35, 133.80, 132.50
– Resistance: 135.60, 136.50, 137.20
Technical levels to watch:
– 10-DMA: 134.69
– 21-DMA: 133.84
– 55-DMA: 132.82
– 200-DMA: 125.30
Macro Fundamentals The Driving the Bullish Bias
There are several macroeconomic fundamentals currently supporting the long-term bullish stance for USD/JPY:
1. Divergence in Central Bank Policies:
– The US Federal Reserve has implemented multiple interest rate hikes to combat inflation, with signs that further tightening may happen if inflation stays above target.
– Conversely, the Bank of Japan continues to stick with an ultra-loose monetary policy, maintaining negative interest rates and Yield Curve Control (YCC).
– This policy divergence is a major factor supporting risk-on behavior in favor of the US dollar over the yen.
2. Inflation and Employment in the US:
– US inflation metrics, while easing from peak levels, are still elevated, prompting hawkish tones from the Federal Reserve.
– The US labor market remains resilient, with the unemployment rate near historic lows and job growth remaining strong.
– Wage pressures are also elevated, maintaining concerns about long-term inflation and lending support to USD.
3. Japanese Economic Outlook:
– Japan continues to post sluggish economic growth figures, with inflation only modestly above the BoJ’s 2 percent target.
– BoJ Governor Kazuo Ueda has reiterated the central bank’s commitment to its dovish stance,
Explore this further here: USD/JPY trading.