The USDJPY pair edged higher on Tuesday, attempting to snap a three-day losing streak despite a sluggish start to the year due to Japanese holiday markets. While economic data remains subdued, a potent mix of geopolitical anxieties and contrasting central bank expectations painted a dynamic picture for the currency pair.
The devastating earthquake in central Japan on New Year’s Day cast a shadow over the market, potentially prompting safe-haven flows towards the Yen. However, the lack of further damage reports limited the impact on USDJPY. Also, the recent comments from BOJ Governor Ueda hinting at a potential exit from negative interest rates by mid-2024 fuelled Yen bulls. This prospect could limit further USDJPY gains in the near term.
On the US Dollar front, market expectations of Fed rate cuts starting as early as March weighed on the Dollar, keeping a lid on USDJPY’s upside potential. The upcoming FOMC minutes on Wednesday and US jobs data this week will be crucial for gauging the Fed’s direction.
Technical
The 4-hour chart shows that the USDJPY currently trades at 141.52, with the 20-SMA (green line) acting as an immediate barrier to the bulls’ charge higher. The downward-sloping 20-SMA (green line), 50-SMA (blue line), and 100-SMA (orange line) indicate a potential bearish bias, with the slightly increasing RSI at 46.80, suggesting a possible attempt at a bounce.
Short-term trading opportunities could exist towards the resistance level at the 141.936 price level should the bulls sustain a break above the short-term 20-SMA. A sustained break above the 141.936 price level could signal a bullish reversal, likely bringing the 142.824 and 143.404 resistance levels into play.
However, short-term trading opportunities could arise towards the initial support at 140.894 should the 20-SMA provide significant resistance. A break below the 140.894 level would likely bring the 140.232 support level into play in the short term.
Summary
The USDJPY pair is at a crossroads, with conflicting forces vying for control. While the BoJ’s potential policy shift and risk aversion support the Yen, the stronger Dollar and shift in Fed expectations could cap its gains. The price action below the moving averages suggests a potential bearish bias, but the rising RSI hints at a possible bounce.
Sources:TradingView, Trading Economics, Reuters, Dow Jones Newswire.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
Disclaimer: Trive South Africa (Pty) Ltd (hereinafter referred to as “Trive SA”), with registration number 2005/011130/07, is an authorised Financial Services Provider in terms of the Financial Advisory and Intermediary Services Act, 37 of 2002. Trive SA is authorised and regulated by the South African Financial Sector Conduct Authority (FSCA) and holds FSP number 27231. Trive Financial Services Ltd (hereinafter referred to as “Trive MU”) holds an Investment Dealer (Full-Service Dealer, excluding Underwriting) Licence with licence number GB21026295 pursuant to section 29 of the Securities Act 2005, Rule 4 of the Securities Rules 2007, and the Financial Services Rules 2008. Trive MU is authorized and regulated by the Mauritius Financial Services Commission (FSC) and holds Global Business Licence number GB21026295 under Section 72(6) of the Financial Services Act. Trive SA and Trive MU are collectively known and referred to as “Trive Africa”.
Market and economic conditions are subject to sudden change which may have a material impact on the outcome of financial instruments and may not be suitable for all investors. Trive Africa and its employees assume no liability for any loss or damage (direct, indirect, consequential, or inconsequential) that may be suffered. Please consider the risks involved before you trade or invest. All trades on the Trive Africa platform are subject to the legal terms and conditions to which you agree to be bound. Brand Logos are owned by the respective companies and not by Trive Africa. The use of a company’s brand logo does not represent an endorsement of Trive Africa by the company, nor an endorsement of the company by Trive Africa, nor does it necessarily imply any contractual relationship. Images are for illustrative purposes only and past performance is not necessarily an indication of future performance. No services are offered to stateless persons, persons under the age of 18 years, persons and/or residents of sanctioned countries or any other jurisdiction where the distribution of leveraged instruments is prohibited, and citizens of any state or country where it may be against the law of that country to trade with a South African and/or Mauritius based company and/or where the services are not made available by Trive Africa to hold an account with us. In any case, above all, it is your responsibility to avoid contravening any legislation in the country from where you are at the time.
CFDs and other margin products are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how these products work and whether you can afford to take the high risk of losing your money. Professional clients can lose more than they deposit. See our full Risk Disclosure and Terms of Business for further details. Some or all of the services and products are not offered to citizens or residents of certain jurisdictions where international sanctions or local regulatory requirements restrict or prohibit them.
