The USDJPY currency pair continues to be caught in a tug-of-war as the US dollar remains underpinned by a combination of factors, including a relatively robust US economy and expectations of a slower pace of Federal Reserve rate cuts compared to initial projections. This has fuelled demand for dollar-funded carry trades, putting upward pressure on the USDJPY.
On the other hand, the Japanese yen is finding some support due to warnings of intervention from Japanese authorities. Finance Minister Shunichi Suzuki has repeatedly expressed concerns about the rapid depreciation of the yen and has not ruled out intervention to curb excessive market moves. This has instilled some caution among speculators who might be hesitant to push the pair much higher for fear of triggering intervention.
Technical Analysis
The USDJPY is currently trading at a narrow range around 151.577. The price action is hovering just above the 20-SMA (green line) and 50-SMA (blue line), with the 100-SMA (orange line) sloping upwards on the 4-hour chart. This suggests a potential underlying bullish bias.
The RSI (54.52) sits near the midline, reflecting a neutral market sentiment. A potential breakout opportunity could emerge if the price can overcome the initial resistance level at 151.840. A sustained move above this level could open the door for a test of the 23.60% Fibonacci retracement level (around 152.38). However, the looming threat of intervention around the 152.00 psychological level could act as a significant hurdle.
On the downside, a break below the 20-SMA and 50-SMA could signal a short-term pullback. Initial support sits at 151.019, with a further decline potentially targeting the 150.593 level.
Summary
The USDJPY currency pair remains in a precarious position. The technical indicators are somewhat bullish, but the looming threat of Japanese intervention and potential profit-taking after a strong run for the USD could limit further upside.
Sources: TradingView, Trading Economics, Reuters, S&P Global.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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