The USDJPY’s post-Christmas rally encountered headwinds, primarily fuelled by cautious messaging from the Bank of Japan (BoJ) and weak Japanese housing data.
While all BoJ members agreed to maintain the ultra-loose policy for now, the Summary of Opinions revealed a split regarding future tightening and timing. Some advocated for a deeper discussion on an exit strategy, but others cautioned against hasty moves, citing fragile wage growth and potential downside risks to consumption.
This dovish tilt took the wind out of the Yen’s sails, adding to pressure from dismal housing starts data, the lowest since August, highlighting a struggling Japanese economy.
Technical
Despite the mixed fundamental backdrop, the USDJPY displays technical bullishness on the 4-hour chart. The price action currently trades flat around 143.064, nestled between the 20-SMA (green line) and 50-SMA (blue line) but well below the 100-SMA (orange line). The price action recently broke above the 20-SMA and is attempting to push above the 50-SMA. Additionally, a slightly rising RSI (48.42) points to potential upward momentum.
Short-term trading opportunities could exist towards the resistance level at the 143.064 price level should the bulls sustain a break above the short-term SMAs. A sustained break above the 143.064 resistance level, confirmed by further upward movement on the SMAs, could pave the way towards 143.928 and 144.819.
Failure to hold above the 20-SMA and 50-SMA, coupled with a dip in the RSI, could offer short-term opportunities towards 141.936. A break below this level could leave the support level at 141.372, within the bears’ reach in the short term.
Summary
The USDJPY faces a tug-of-war between dovish BoJ hints and weak economic data on the one hand and technical bullishness on the other. While the near-term outlook remains uncertain, a break above 143.064 could trigger bullish momentum, whereas a dip below 141.936 might signal a bearish continuation.
Sources: TradingView, Reuters, Ministry of Land, Infrastructure, Transport and Tourism, Japan, Dow Jones Newswire.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
Disclaimer: Trive South Africa (Pty) Ltd, Registration number 2005/011130/07, and an Authorised Financial Services Provider in terms of the Financial Advisory and Intermediary Services Act 2002 (FSP No. 27231). Any analysis/data/opinion contained herein are for informational purposes only and should not be considered advice or a recommendation to invest in any security. The content herein was created using proprietary strategies based on parameters that may include price, time, economic events, liquidity, risk, and macro and cyclical analysis. Securities involve a degree of risk and are volatile instruments. 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. When trading or investing in securities or alternative products, the value of the product can increase or decrease meaning your investment can increase or decrease in value. Past performance is not an indication of future performance. Trive South Africa (Pty) Ltd, and its employees assume no liability for any loss or damage (direct, indirect, consequential, or inconsequential) that may be suffered from using or relying on the information contained herein. Please consider the risks involved before you trade or invest.
