The USDJPY currency pair has garnered significant attention in recent years, showcasing a remarkable streak of three consecutive years of gains.
Currently trading nearly 7% higher year-to-date, its upward trajectory has been notably influenced by a crucial fundamental factor: the interest rate differential between the United States and Japan. With Japan maintaining a nominal interest rate of -0.1% while the U.S. holds rates at 5.25%, investors are increasingly drawn to the higher yields offered by the U.S. market, driving demand for the U.S. Dollar.
This attraction to U.S. markets is underscored by recent economic indicators, such as the U.S. Personal Consumption Expenditures (PCE) Price Index remaining flat at 2.4%, aligning with market expectations. Furthermore, the Federal Reserve’s commitment to seeing through lower inflation rates, as indicated in the Federal Open Market Committee (FOMC) Minutes, suggests a cautious approach to rate cuts. Against this backdrop, the USDJPY currency pair appears poised for further upside gains, buoyed by the strength of the Greenback driven by higher interest rates in contrast to Japan’s accommodative monetary policy stance.
Technical
The USDJPY currency pair demonstrates a discernible uptrend, positioned comfortably above the 100-day moving average, indicating bullish momentum.
However, recent price action reveals a period of sideway consolidation within a rectangular pattern characterized by distinct support and resistance levels. Support is firmly established at the 149.210 level, coinciding with oversold conditions as indicated by the Relative Strength Index (RSI). Conversely, resistance stands at the 150.806 level, originating from a selloff amidst overbought RSI conditions.
A retest of the resistance level is plausible with prevailing upside momentum, potentially signalling further upward movement. However, should downside pressure materialize, attention may shift to the 149.210 support level.
Summary
With a strong uptrend influenced by interest rate differentials, USDJPY remains bullish. Despite recent sideways consolidation, support at 149.210 and resistance at 150.806 offer key levels to watch. Prevailing upside momentum suggests further gains, yet downside pressure may find support at 149.210.
Sources: Reuters, TradingView
Piece Written By Nkosilathi Dube, Trive Financial Market Analyst
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