Written by: Rania Gule, Senior Market Analyst at XS.com – MENA
|
The USD/JPY pair faces multiple challenges requiring close monitoring by traders and investors in global markets, stabilising cautiously near 155.83 on Wednesday. While the Japanese yen continues to experience pressure due to future monetary policy expectations for the Bank of Japan, the US dollar remains in a sensitive position amid economic and geopolitical factors influencing financial markets. From my perspective, we’ve seen volatile price movements during early Wednesday trading, with the yen retreating from its highest level in over a month against the US dollar amidst positive market sentiment. This trend reflects an increasing risk appetite, which supports the US dollar as it benefits from a slight rebound in US Treasury yields. However, the yen remains relatively stable, bolstered by growing expectations that the Bank of Japan will raise interest rates soon. This serves as a key factor preventing a sharp decline in the yen’s value for now. On the other hand, expectations for the Federal Reserve to cut interest rates later this year present an additional challenge for dollar stability. As the Bank of Japan is anticipated to raise rates during its upcoming Friday meeting, the Fed is expected to lower rates twice this year, limiting the dollar’s potential for sustained gains. This divergence in monetary policy between the two central banks creates market uncertainty, making it difficult to pinpoint future trends. Fundamentally, Japan’s internal support for wage increases as a prerequisite for rate hikes stands out. Bank of Japan officials emphasize that widespread wage growth is crucial for stabilizing Japan’s economy and achieving its 2% inflation target. This policy aligns with labour unions advocating for substantial wage hikes to stimulate domestic consumption and foster sustainable economic growth. Accordingly, the BoJ’s hawkish stance on rate hikes signals readiness for policy shifts if positive economic momentum persists, raising the likelihood of a rate increase at the upcoming meeting. Politically, former President Donald Trump’s threats of imposing tariffs on imports from Canada and Mexico in February 2025 exacerbate market anxieties. Such tariffs could increase production costs and disrupt global economic growth, potentially raising inflation in the US and complicating the Federal Reserve’s rate-cutting plans. Simultaneously, US economic data, such as the Producer Price Index (PPI) and Consumer Price Index (CPI), signal easing inflation, bolstering expectations for Fed rate cuts. This weakens long-term support for the dollar, as lower inflation could slow economic growth and delay aggressive monetary tightening. In my view, the USD/JPY pair serves as a vital barometer for global financial market stability. Significant volatility in this pair can impact investor sentiment and influence bond and related markets. Given the global political climate and diverging central bank policies, markets remain hesitant to commit to a clear direction for the USD/JPY exchange rate. Current expectations suggest short-term stabilization for the pair within a narrow range of 154.50 to 156.00, as traders tread cautiously ahead of the BoJ meeting. However, this stability could be temporary, with potential surprises from the BoJ or developments in US policy triggering notable currency market movements. Ultimately, the USD/JPY pair remains in a state of anticipation, reflecting the balance of global political tensions and evolving monetary policy. While the yen faces challenges from rising US yields and BoJ rate hike expectations, the dollar contends with potential Fed rate cuts, keeping the pair in a precarious equilibrium. Technical Analysis of (USDJPY) Prices:
The technical performance of the USD/JPY pair reflects notable resilience, as the pair rebounded from the key support level at 155.00 and the lower boundary of a multi-month ascending channel, indicating continued bullish momentum. However, oscillators on the daily chart have yet to show any strong negative signals. On the 4-hour chart, a minor descending price channel has formed, adding uncertainty with the potential for bearish movements. It would be prudent to wait for a sustained break and close below the support level of 154.50-154.45 to confirm bearish momentum. If this scenario materializes, the downward trend may accelerate toward the 154.00 level, with the potential to target the 153.50 area and the psychological level of 153.00.
USDJPY – Prices Chart -XS.com In a potential bullish scenario, the 156.00 area remains a strong hurdle and key resistance, followed by significant resistance levels at 156.25 and 156.55-156.60, tested earlier this week and aligning with the neckline of a double-bottom pattern on the 4-hour chart. Breaking through this resistance could strengthen buying momentum, with the potential to target the 157.00 area. If this level is breached, the pair may aim to test the resistance at 157.60 and the psychological level at 158.00. Sustained momentum above these levels would support a retest of January’s peak at 159.00, reinforcing the bullish trend. Overall, the pair’s general trend remains positive as long as it continues trading within the primary price channel. However, careful monitoring of the support and resistance levels is essential to determine the next moves. Interaction with these technical levels will be critical in shaping the pair’s future trajectory, whether for a strong bullish breakout or a potential medium-term bearish reversal. Support Levels: 154.50, 154.00, 153.00 Resistance Levels: 156.00, 157.00, 158.00 |
