*Original article by Greg Michalowski via ForexLive on TradingView*
Title: USD/JPY Hits Fresh Highs: Technical Analysis and What’s Next
The USD/JPY currency pair has continued its upward trajectory, climbing to a new daily high and exhibiting strong bullish momentum. This move is consistent with the prevailing trend over the past several weeks. Technical indicators suggest that the pair remains in bullish control, though several key levels will now be important to watch to gauge whether the rally will continue or pause for consolidation.
This article breaks down the recent price action in USD/JPY, the technical backdrop driving the rally, and the key short-term resistance and support levels traders should monitor going forward.
Recent Price Action
– The USD/JPY has extended to a new high for the day, reaching 156.38 according to real-time price data at the time of writing.
– The pair underwent a steady climb during the Asia and European trading sessions, supported by strong USD performance and relatively quiet interventions from Japanese officials.
– Friday’s rally is part of a broader bullish trend that began in early 2024, fueled by the divergence in monetary policy between the Federal Reserve and the Bank of Japan.
Key Technical Levels
Several important technical zones come into play as USD/JPY charts new highs. These levels provide insight into buyer strength, potential reversal points, and target areas for continued bullish momentum.
Near-Term Support
– The most recent swing low formed around the 155.00 level. This now acts as a crucial support level.
– A break below 155.00 could see the pair slide toward the next significant support near 154.57. This was a key resistance-turned-support barrier last week.
– The rising 100-hour moving average currently sits close to 154.60. In the event of a pullback, this dynamic level may offer additional support for buyers looking to enter or re-enter long positions.
– A sustained move below the 100-hour MA would indicate a potential shift in the short-term momentum and could open the door for deeper retracement toward the 154.00 and even 153.65 areas.
Immediate Resistance
– After clearing the 156.00 handle, the USD/JPY faces initial resistance from the psychological 157.00 level. This round number could pose a challenge for bulls.
– Above 157.00, the next target zone lies near 158.00, a level not seen since late 2023.
– Historical chart structure between 157.20 and 158.00 suggests potential selling pressure in this area, so traders may look for signs of exhaustion or reversal if the price approaches this zone.
Bigger Picture Technical Outlook
The broader trend for the USD/JPY remains firmly bullish. The following factors continue to support the uptrend:
1. Monetary Policy Divergence:
– The U.S. Federal Reserve has maintained a hawkish tone despite some moderation in inflation, keeping interest rates elevated.
– The Bank of Japan, in contrast, has continued with its ultra-loose monetary policy, although some signs suggest modest normalization efforts may eventually arise.
– This divergence in rates continues to favor a stronger USD against the JPY, sustaining buying interest in USD/JPY.
2. Yield Differentials:
– U.S. Treasury yields have firmed in recent sessions, particularly at the long end of the curve. With upward pressure on yields, the dollar finds support versus lower-yielding currencies like the yen.
– The benchmark U.S. 10-year yield is an important factor to watch alongside USD/JPY. Correlation between the two markets remains strong.
3. Lack of Intervention from Japanese Authorities:
– While Japanese officials have frequently expressed concerns over yen weakness, they have not undertaken large-scale interventions during this current leg of the rally.
– Market participants appear increasingly comfortable challenging informal verbal thresholds, particularly with the yen trading above the 155.00 level.
Short-Term Trading Strategy
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