The USDJPY currency pair is on track for its third consecutive week of gains, opening Monday with a strong start despite growing expectations of rate cuts from the Federal Reserve in March. The impressive surge in the Nikkei to its highest point in 34 years has come at the detriment of the Japanese Yen, fuelling the currency pair’s upward momentum.
However, the market experienced a shift in sentiment on Friday, as the US producer price index data revealed a year-over-year PPI of 1%, falling below the anticipated 1.3%. This unexpected development strengthened the belief in the market that the first round of monetary easing will commence in March. According to the CME FedWatch Tool, there is now a 73% likelihood of lower rates after the upcoming meeting, marking a notable increase from the 65% probability observed just a week ago, which could cap the currency pair’s upward momentum.
The upward channel on the 4H chart has held firm as the 25-SMA (green line) converged with the dynamic support to prevent a breakdown in recent sessions. If this support continues to hold, the retracement of the prior downtrend could continue, with some psychological resistance levels not far away.
If the pair can clear resistance at 145.519, the retracement could reach the Fibonacci midpoint at 146.106. This could be the first test of the retracement’s strength, which could result in a temporary pullback. However, if the momentum pushes the price action higher, the uptrend could be sustained, bringing higher resistance at 146.643 and 147.167 into play before the 61.8% Fibonacci golden ratio could be reached at 147.480.
In contrast, a channel breakdown could occur if the 25-SMA support fails in the upcoming sessions. The 50-SMA (blue line) could provide a barrier to the bearish momentum at 144.558 and could present a difficult challenge for the sellers. However, if the bears manage to break down this support, it could signal a shift in sentiment, potentially triggering a sustainable downturn toward 143.686 and 143.427, the 100-SMA (orange line).
With the strong performance in the Japanese equity market, the Yen has retreated, much to the benefit of the USDJPY currency pair. However, the gains could be capped by the retreat of the US dollar as the market continues to bet on rate cuts to occur in March. The 25-SMA support is keeping the ascending channel in play and could see the currency pair riding out the upward momentum in the upcoming sessions.
Sources: Koyfin, Tradingview, CME Group
Piece written by Tiaan van Aswegen, 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.