USDJPY Technical Analysis

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The Fed decided to maintain
the interest rates at 5.00-5.25% last week, citing the need for additional
economic data before considering additional hikes. They are trying to strike a
balance of monetary restraint that can effectively combat inflation and prevent
a severe recession.

In his testimony to
Congress yesterday, Fed
Chair Powell
reaffirmed their commitment to lowering inflation to the
desired target. However, he acknowledged that there is still a long way to go
to reach their goal and added that if the economy performs as expected, the two
additional rate hikes outlined in the Dot Plot could be viewed as a „pretty
good guess”.

Overall, central banks are
now data-dependent as they are trying to fine tune their terminal rates, so
going forward the data is what really matters and not what the central bank
speakers say.

USDJPY Technical Analysis –
Daily Timeframe

On the daily chart, we can see that USDJPY has
reached a key resistance
level at 142.17 where we can also find the 61.8% Fibonacci
retracement
level of the entire fall since October 2022. A strong break
above this resistance supported by a fundamental catalyst would open the door
for a rally into the 150.00 handle. We can also notice that this last leg
higher is diverging
with the MACD
which is generally a sign of weakening momentum often followed by pullbacks or
reversals. Seeing it here makes it more compelling that we might get a big
pullback soon.

USDJPY Technical Analysis –
4 hour Timeframe

On the 4 hour chart, we can see that the red 21 moving
average
has been acting as dynamic support for the buyers but we are now
starting to see the convergence of the moving averages as the price action
becomes more rangebound. If we see them cross to the downside with a break below
the 141.25 level, it would further confirm a retracement back to the 138.00
support where there’s also the 50% Fibonacci retracement level and a trendline
for confluence.

USDJPY Technical Analysis –
1 hour Timeframe

On the 1 hour chart, we can see that the
price has recently bounced on a previous resistance
turned support
, but couldn’t find enough strength to break above the 142.17
resistance. This little range gives us a clear setup:

  • If the price breaks above the 142.17
    resistance supported by a fundamental catalyst, we can expect a rally towards
    the 150.00 handle.
  • If the price breaks below the 141.25
    support, we can expect a pullback all the way back to the 138.00 handle.

Today we will see the US
Jobless Claims report and tomorrow the US PMIs. Big misses should lead to more downside
for the pair as the market would price out the July hike and probably price in
some cuts. On the other hand, big beats should lead to more upside as it would
signal that the Fed may have to do more.

See also the video below:

This article was written by FL Contributors at www.forexlive.com.

Go to Forexlive

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