USD/JPY Price Analysis – Aug 01, 2024

Daily Price Outlook

During the European trading session, the USD/JPY pair has recently shown bullish performance due to several factors. The Japanese Yen (JPY) initially surged, reaching a four-month high of 148.50 against the US Dollar (USD) during early Asian trading hours.

This rally was driven by the Bank of Japan's (BoJ) unexpectedly hawkish policy announcements, including a 15 basis point increase in its short-term rate target to 0.15%-0.25% and a plan to reduce Japanese government bond (JGB) purchases starting in 2026.

These measures improved expectations for wages and inflation, temporarily boosting the Yen. However, the USD/JPY pair's upward trend faced resistance as the Yen's gains were offset by a strengthening USD, which ultimately boosted the USD/JPY pair.

Bullish US Dollar Drives USD/JPY Pair Higher Amid Fed's Stable Rates and Positive Economic Data

On the US front, the US Dollar has recently experienced a bullish trend, influenced by several factors including the Federal Reserve's decision to maintain interest rates at 5.25%-5.50%. This decision has reinforced expectations of a stable and resilient US economy.

Federal Reserve Chair Jerome Powell's remarks about a potential rate cut in September have further fueled investor interest in the USD. The USD's strength is also supported by positive economic data, such as the ADP report showing a rise in private sector employment and wage growth.

As a result, the USD has advanced against other currencies, including the Yen, impacting the USD/JPY pair positively. Traders are now looking to upcoming US economic data, including the ISM Manufacturing PMI and weekly Initial Jobless Claims, for further direction on the USD/JPY pair.

BoJ's Policy Moves and Japan’s Massive Intervention Impact on USD/JPY Volatility

On the BoJ front, the USD/JPY pair was also influenced by the Bank of Japan's recent policy decisions. The BoJ raised its short-term interest rates by 15 basis points to 0.15%-0.25% and announced plans to cut its purchases of Japanese government bonds (JGBs) starting in 2026.

These moves were aimed at addressing rising inflation and a tight labor market.

In July, Japan’s Ministry of Finance intervened significantly in the foreign exchange market, spending ¥5.53 trillion ($36.8 billion) to stabilize the Yen, which had hit its lowest level in 38 years.

This substantial intervention helped temporarily stabilize the Yen. However, the impact on the USD/JPY pair has been mixed.

While the Yen was somewhat stabilized, the USD/JPY exchange rate continues to be influenced by other factors, such as Federal Reserve policies and global economic conditions. This ongoing volatility highlights the complex nature of forex markets and the challenges in managing currency value fluctuations.

USD/JPY - Technical Analysis

The USD/JPY pair is trading at $150.013, down 0.12%, reflecting a period of consolidation as traders assess recent economic data and central bank policies. The currency pair remains under pressure, hovering below the critical pivot point of $150.789 on the 4-hour chart.

This level is crucial for traders seeking to determine the next directional move. The USD/JPY is exhibiting bearish tendencies, influenced by mixed signals from the Federal Reserve's recent statements and ongoing economic uncertainty.

Immediate resistance is positioned at $150.937, with further resistance levels at $152.030 and $153.152. These thresholds are essential for bullish traders looking to capitalize on potential upward momentum, especially if U.S. economic data continues to show resilience.

However, the Relative Strength Index (RSI) at 29 indicates that the pair is in oversold territory, suggesting the potential for a corrective rebound.

On the downside, immediate support is found at $148.047, with additional supports at $147.346 and $146.476. These levels are pivotal for sustaining the recent range-bound trading and could invite buying interest if the pair dips further.

The 50-day Exponential Moving Average (EMA) at $153.878 is significantly above the current price, highlighting the prevailing bearish sentiment unless a strong recovery materializes.

Traders might consider a buy position above $149.050, targeting a take profit at $150.789, while setting a stop loss at $148.069 to manage downside risks.

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