USD/JPY Price Analysis – Aug 22, 2024
Daily Price Outlook
During the European trading session, the USD/JPY currency pair gained ground and remained well bid around 145.87 level, hitting the intra-day high of 145.91 level.
However, the reason for its upward momentum was supported by the US Federal Reserve's (Fed) indication of a possible rate cut in September, coupled with Japan's trade deficit data that dragged the Japanese Yen (JPY) lower.
Moving ahead, traders are closely monitoring upcoming US economic reports, such as Weekly Initial Jobless Claims and Existing Home Sales.
These data releases are crucial as they offer insights into the US economy and can create short-term trading opportunities by potentially influencing market movements.
US Dollar Gains Strength Amid Fed Rate Cut Expectations
On the US front, the broad-based US dollar has recently gained strength, ending a four-day decline. However, the Fed Minutes released on Wednesday revealed that most Federal Reserve officials are leaning towards a rate cut in the upcoming September meeting, provided inflation continues to cool.
The Fed has kept its benchmark rate at 5.3% since July 2023, and markets are anticipating a cut of up to a full percentage point by the end of the year.
Despite the US dollar gaining traction from a slight recovery in Treasury yields, this anticipation of a rate cut might weigh on the USD and limit the upside potential of USD/JPY in the near term.
Mixed Japanese Data and BoJ Rate Hike Expectations Provide Limited Support for JPY
On the other hand, Japan's economic data and expectations for the Bank of Japan (BoJ) are providing some support for the USD/JPY pair.
On the data front, the Jibun Bank Manufacturing PMI for August rose to 49.5, slightly below the expected 49.8, while the Services PMI improved to 54.0.
Although these figures highlight a mixed economic outlook, they are overshadowed by Japan's record trade deficit, which has weakened the Yen.
Moreover, economists anticipate that the BoJ might raise interest rates by the end of the year. However, the Reuters poll indicates a median forecast of a 0.50% rate at year-end, marking a 25 basis points increase.
The market will closely watch BoJ Governor Kazuo Ueda's speech on Friday for any hawkish remarks that could lift the JPY against the USD.
Therefore, the mixed Japanese economic data and expectations of a BoJ rate hike may offer limited support for the JPY. However, Japan’s record trade deficit weakens the Yen, likely keeping the USD/JPY pair stronger in the near term.
USD/JPY - Technical Analysis
The USD/JPY pair is experiencing a modest uptick, trading at $145.486. The pair is hovering near a crucial pivot point at $146.1270, which will play a key role in determining the next direction.
If the price fails to sustain above this level, the downside risks could increase, with immediate support at $144.3320, followed by $143.2110 and $141.7870.
On the upside, if the pair manages to break above the pivot, it could face resistance at $147.3240, $149.3650, and ultimately $150.9000. The RSI is currently at 41, indicating a neutral to slightly bearish sentiment.
Additionally, the 50-day EMA at $146.9510 suggests that there’s room for further downside correction if the current momentum does not pick up.
Conclusion: Consider selling below $146.161, targeting $143.998 with a stop loss at $147.340.
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