The USDJPY currency pair has shown a notable uptick, trading 87 basis points higher for the week. Contrasting economic data from Japan and the U.S. primarily drives this movement.
The Japanese Yen has been weighed down by a higher-than-expected trade deficit reported for April, highlighting ongoing economic challenges. In stark contrast, the U.S. Dollar has been bolstered by robust economic indicators. Key U.S. data points have supported the Dollar’s strength. Continuing jobless claims came in lower than expected, indicating resilience in the labour market, a crucial driver of inflation. Additionally, the composite PMI exceeded expectations, registering at 54.4. This figure reflects an expansion in the manufacturing and services sectors, signalling a healthy U.S. economy.
These positive economic signals have intensified inflation concerns in the U.S., challenging the prevailing expectations of a rate cut. Consequently, market sentiment has shifted slightly, with the probability of rates remaining unchanged in September rising to 46.2%, up from 42% the previous day. Will the U.S. Dollar maintain its strength against the Yen, or will market dynamics shift once again?
Technical
The USDJPY currency pair is currently trading in an uptrend, above the critical 100-day moving average. Recently, support formed at the 153.599 level following a sharp rejection of the downside at this point. This rejection, occurring amid oversold RSI conditions, resulted in the formation of a bullish hammer candle on the daily chart, a classic signal of potential reversal and upward momentum.
Since then, the pair has been on the rise, crossing above the 100-day moving average, further validating the bullish outlook. This upward movement is a positive sign for traders, indicating sustained buying interest and a shift in market sentiment favouring the U.S. Dollar.
As the pair continues its ascent, resistance at the 157.970 level looms as a potential point of interest. If the current upside momentum persists, this level could be retested, presenting a crucial hurdle for further gains. However, given the current overbought RSI conditions, there is a risk of downside momentum resurfacing. Should this occur, the 100-day moving average will likely serve as a critical support level, providing a point of interest for traders looking for short-term opportunities to the downside.
Summary
The USDJPY’s strong uptrend, supported by robust U.S. economic data and trading above the 100-day moving average, suggests bullish momentum. With resistance at 157.970 and support at 153.599, traders should watch for potential retracement amid oversold RSI conditions. The Dollar’s resilience remains a key focus.
Sources: Ministry of Finance Japan, S&P Global, U.S. Department of Labor, CME, Reuters, TradingView
Piece Written By Nkosilathi Dube, Trive Financial Market Analyst
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