The USDJPY currency pair continues its bullish run, extending gains for the fifth consecutive week. This bullish momentum comes despite a stronger-than-expected Japanese producer price inflation report (0.8% YoY). The Federal Reserve is expected to maintain a hawkish stance due to concerns over sticky inflation in the US. The upcoming US CPI data will be a key indicator, with a reading above 3.4% year-on-year likely solidifying expectations for continued rate hikes. Conversely, the Bank of Japan remains accommodative, with Governor Ueda reiterating a commitment to easy monetary policy despite rising producer prices. This divergence in central bank policy creates a supportive environment for the US dollar against the Japanese yen.
Secondly, the Japanese government has expressed concerns about the rapid depreciation of the yen. Finance Minister Suzuki warned of potential intervention, raising anxieties amongst traders. However, a lack of concrete action and Governor Ueda’s downplaying of the need for immediate rate hikes suggest intervention remains a last resort. This keeps the focus on the interest rate differential, potentially driving the USDJPY currency pair higher.
Technical Analysis
The 4-hour chart shows that the price action trades above the 20-SMA (green line) and 50-SMA (blue line), with all three SMAs (including the 100-SMA) in an upward-sloping configuration, indicating a bullish trend. The RSI sits at 56.82, hovering around the midline, suggesting neither overbought nor oversold conditions.
A potential break above the current price could see a challenge at the 23.60% Fibonacci extension level (152.238). A successful break above this level could open the door for a test of the 50.00% Fibonacci extension (152.356). Initial support lies at 151.019, with a break below potentially targeting the 150.308 level. Conversely, initial resistance sits at the all-time high of 151.97, with a confirmed break potentially leading to a test of the Fibonacci levels mentioned above.
Summary
The USDJPY currency pair is likely to remain bullish in the near term. The fundamental backdrop favours the US dollar due to the contrasting monetary policies of the US Federal Reserve and the Bank of Japan. Technically, the price action sits above key moving averages with room for further upside. However, the threat of intervention by Japanese authorities and a neutral RSI reading introduce some uncertainty.
Sources: TradingView, Trading Economics, Dow Jones Newswire, Bank of Japan
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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