The USDJPY pair edged higher on Tuesday, attempting to snap a three-day losing streak despite a sluggish start to the year due to Japanese holiday markets. While economic data remains subdued, a potent mix of geopolitical anxieties and contrasting central bank expectations painted a dynamic picture for the currency pair.
The devastating earthquake in central Japan on New Year’s Day cast a shadow over the market, potentially prompting safe-haven flows towards the Yen. However, the lack of further damage reports limited the impact on USDJPY. Also, the recent comments from BOJ Governor Ueda hinting at a potential exit from negative interest rates by mid-2024 fuelled Yen bulls. This prospect could limit further USDJPY gains in the near term.
On the US Dollar front, market expectations of Fed rate cuts starting as early as March weighed on the Dollar, keeping a lid on USDJPY’s upside potential. The upcoming FOMC minutes on Wednesday and US jobs data this week will be crucial for gauging the Fed’s direction.
The 4-hour chart shows that the USDJPY currently trades at 141.52, with the 20-SMA (green line) acting as an immediate barrier to the bulls’ charge higher. The downward-sloping 20-SMA (green line), 50-SMA (blue line), and 100-SMA (orange line) indicate a potential bearish bias, with the slightly increasing RSI at 46.80, suggesting a possible attempt at a bounce.
Short-term trading opportunities could exist towards the resistance level at the 141.936 price level should the bulls sustain a break above the short-term 20-SMA. A sustained break above the 141.936 price level could signal a bullish reversal, likely bringing the 142.824 and 143.404 resistance levels into play.
However, short-term trading opportunities could arise towards the initial support at 140.894 should the 20-SMA provide significant resistance. A break below the 140.894 level would likely bring the 140.232 support level into play in the short term.
The USDJPY pair is at a crossroads, with conflicting forces vying for control. While the BoJ’s potential policy shift and risk aversion support the Yen, the stronger Dollar and shift in Fed expectations could cap its gains. The price action below the moving averages suggests a potential bearish bias, but the rising RSI hints at a possible bounce.
Sources:TradingView, Trading Economics, Reuters, Dow Jones Newswire.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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