The USDJPY currency pair lost some ground early on Tuesday despite Japan unexpectedly falling into a recession. Japanese GDP statistics revealed -0.1% quarter-on-quarter growth, falling below the 0.3% consensus from the prior -0.8%. On an annualized basis, the growth amounted to -0.4%, another decline from the prior -3.3%.
However, the Yen held firm as Japanese officials recently warned of rapid price movements in the Yen, bringing back caution over potential intervention. On the US front, hotter-than-expected CPI data earlier in the week boosted the greenback. Still, the market remains uncertain about its expectations for rate cuts, especially after recent Federal Reserve officials’ comments, which warned that the central bank would be wary of waiting too long before it cuts interest rates. With uncertainty remaining in the market, the market could look toward the US retail sales data later today for further cues of the economy’s strength.
Technical
On the 4H chart, a rising wedge has emerged, as the bullish momentum has extended from late January. The 25-SMA (green line) remains above the 50-SMA (blue line) and 100-SMA (orange line), confirming the bullish tilt in the shorter term. The RSI was recently in overbought conditions, which coincided with a subsequent pullback, putting the dynamic support of the wedge at risk.
If the breakdown should occur, it faces a challenging barrier at the 25-SMA and a psychological demand zone near 149.509. While a retracement could be initiated at this level, sustained bearish pressure could further drive the pair down toward 148.796. The Fibonacci midpoint converges with the 100-SMA at 148.375, creating another solid level of support before the 61.8% Fibonacci golden ratio at 147.799 could come into play.
However, the bullish momentum could be sustained if the price fails to fall below the demand zone. Resistance at 150.349 and 150.799 could then become pivotal within the wedge pattern, as a breakout could steepen the uptrend toward higher resistance at 151.414.
Summary
The USDJPY currency pair held its ground despite Japan unexpectedly falling into a recession. However, a rising wedge now looks vulnerable to a breakdown, with support at 149.509 potentially being pivotal in the upcoming sessions to determine whether a bearish reversal could be sustained.
Sources: Koyfin, Tradingview, Reuters
Piece written by Tiaan van Aswegen, Trive Financial Market Analyst
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