The USDJPY faces a pivotal juncture as it hovers around 147.659 ahead of crucial US Q4 GDP data. The Yen appreciated earlier this week, retreating from near two-month lows after Bank of Japan Governor Kazuo Ueda hinted at the possibility of a policy shift as early as March. Ueda’s comments on wage growth and service sector growth fuelled speculations of a potential exit from negative interest rates, prompting a temporary yen rally.
However, the optimism surrounding the BoJ’s hawkish tilt could be tempered by today’s key US economic data releases. The much-anticipated US Q4 GDP figure is expected to show a slowdown to 2.0%, compared to 4.9% in the previous quarter. Softer-than-expected GDP might reignite expectations for an earlier Fed rate cut, potentially boosting the USD and putting downside pressure on the USDJPY pair.
Furthermore, US core PCE inflation data, due tomorrow, remains a crucial indicator for the Fed’s monetary policy path. Sticky inflation readings could persuade the Fed to stay on hold for longer, keeping the USD supported against the JPY. Additionally, traders will keenly watch any BoJ commentary throughout the session for further clues on their policy stance.
The 4-hour chart depicts a nuanced picture. The current price at 147.659 trades below the 23.60% Fibonacci retracement level but above the 50-SMA. This indecisiveness reflects the balancing act between the BoJ’s cautious approach and potential US data-driven volatility. The 20-SMA (green line) resides above the 50-SMA (blue line) and 100-SMA (orange line), suggesting latent bullish momentum, but the price action’s inability to break the 23.60% Fibonacci level keeps the bears at bay.
The RSI, standing at 49.48, indicates a neutral stance. Short-term trading opportunities could emerge if the price breaches the 23.60% Fibonacci retracement level, potentially targeting the resistance level at 148.315. A decisive move above this resistance could confirm bullish momentum, aiming for 148.801.
Conversely, a successful push below the 50-SMA could offer short-term trading opportunities towards the initial support at the 50.00% Fibonacci retracement level (146.584). A break below the 146.584 level would likely bring the 61.80% Fibonacci retracement level (146.060) support level into play in the short term.
USDJPY stands at a crossroads. While the BoJ’s cautious stance and speculation about a future pivot offer some support to the Yen, the upcoming US GDP data could be the catalyst for a decisive move. A strong GDP reading could propel USDJPY higher towards the 148.801 resistance level, potentially extending gains to 150.00 in the longer term. Conversely, a weaker GDP figure might trigger a pullback towards the 50.00% Fibonacci support at 146.584, with the 61.80% level at 146.060 acting as a further downside target.
Sources: TradingView, Trading Economics, Reuters, Dow Jones Newswire.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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