The USDJPY currency pair has been caught in a range, with its upward progress limited as it struggles to breach the significant 151 mark in recent trading sessions.
Despite this, the pair remains on a sharp upward trajectory, nearing its peak levels from 2023. Year-to-date, the pair has surged by 6.64%, positioning itself for a fourth consecutive year of gains. This upward momentum is predominantly fuelled by the interest rate differential between the two nations, which heavily favours the U.S. Dollar in this pairing.
While the Bank of Japan maintains an ultraloose monetary policy with interest rates lingering in negative territory, the Federal Reserve stands at the opposite end of the spectrum, boasting benchmark rates at a two-decade high, ranging between 5.25% and 5.50%. This likely serves as a driver of Dollar demand due to the higher-yielding domestic bond market in the U.S. As market participants await cues from the Powell Testimony and U.S. Nonfarm Payrolls data this week, the USDJPY pair remains poised for further scrutiny, particularly regarding its sensitivity to interest rate dynamics and inflationary pressures.
Technical
The USDJPY currency pair has exhibited a predominantly sideways movement, trading within the confines of a rectangle pattern.
This pattern is characterized by well-defined support and resistance levels at 149.523 and 150.885, respectively. Initially, the pair displayed an upward trend, staying above the 100-day moving average. However, as consolidation ensued, the pair has now converged with the moving average, indicating a period of decreased volatility and lack of a trend.
Notably, a bullish hammer candle formation suggests a sharp rejection of the support level, hinting at potential upside momentum. If buyers continue to dominate, a retest of the resistance level at 150.885 is possible. Conversely, the support level at 149.523 may come into play if selling pressures emerge, leading to a sustained reversal.
Summary
In conclusion, the USDJPY pair faces resistance near the 151 mark amid a tight trading range. Despite the ongoing consolidation, its trajectory reflects the interest rate disparity between the U.S. and Japan. Technically, a breakout above 150.885 resistance or below 149.523 support may signal further directional bias.
Sources: U.S. Bureau of Economic Analysis, Reuters, TradingView
Piece Written By Nkosilathi Dube, Trive Financial Market Analyst
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