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USD/JPY Technical Analysis: Fed’s Signals Important


In light of the USD/JPY currency pair being greatly affected by the monetary policy divergence between the Japanese Central Bank, which adopts an easing policy, the US Federal Reserve, which adopts a tightening policy to contain harsh inflation, the upward trend may remain for the USD/JPY currency pair. It is standing and moving around and above the psychological resistance 140.00 confirms that.



In general, the US dollar traded higher against most of its major rivals last Friday and continued to rise today after the US employment report revealed that the economy added a total of 339,000 jobs in May, up from 294,000 in April, and much more than the forecast of 180k. The stellar employment gain may have added credence to the “higher for longer” narrative regarding US interest rates, but it was not enough to boost expectations of a possible rate hike in June.

Although investors are now seeking a 20 bps rally by July compared to 18 bps before the jobs data, they continue to identify a 70% probability of a pause in June. Perhaps the Achilles heel of the report was the US unemployment rate rising to 3.7% from 3.4%, as well as slowing wage growth. On top of the negative revision in the unit labor costs index for the first quarter, and other surveys confirming a slowdown in wages in May, Friday’s data may have reinforced speculation that inflation could decline further in the coming months, and thus, there is no need for officials to rush interest rates. American.

The next test for the US dollar could be ISM’s non-manufacturing and services PMI readings for May, but traders may pay extra attention to the price sub-index, as a notable drop could further validate the view that inflation could drift down faster. than previously thought. However, the release that could be decisive on how the Fed proceeds from now on is the CPI numbers for the month, due next week.

Overall, rising unemployment and slowing wages allowed equity investors to continue to increase their exposure to risk, despite treasury yields surging higher. The prospect of a potential halt in June appearing to prompt investors to add to their positions before the surge prompted them to liquidate, or the fact that they saw interest rates cut to current levels by the end of the year after a possible rally in July does not affect their portfolio valuation.

On the other hand, after the US debt ceiling decision eliminated fears of economic instability, the stellar gains in US non-farm payrolls may indicate that the economy is doing well at a time when no further increases were needed. In other words, fears that Fed tightening could do serious damage to the economy are waning. However, the debt ceiling deal may act as a booster pill for the time being, but potential liquidity pressures from Treasury issues could have the opposite effect. With the Nasdaq now nearly 40% higher than its October low, the risk of a downward correction may increase for the foreseeable future.

  • There is no change in my technical view of the performance of the USD/JPY currency pair, as the general trend is still bullish.
  • Stability around and above the psychological resistance 140.00 will remain supportive of bulls controlling the trend.
  • The technical indicators will not move towards strong overbought areas without moving towards the resistance levels at 140.55 and 141.40, respectively.

On the other hand, according to the performance on the daily chart below, the movement of the dollar / yen currency pair below the support level of 138.20 is a threat to the current bullish outlook.

The dollar-yen pair will remain subject to signals from both officials of the Central Bank of Japan and the US Federal Reserve Bank, as well as signals of Japanese intervention in the markets to prevent a further collapse of the Japanese yen against the rest of the other major currencies, especially against the US dollar.

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