Technical Analysis

USD/JPY Price Analysis – Dec 28, 2023

By LonghornFX Technical Analysis
Dec 28, 20233 min

Daily Price Outlook

The USD/JPY pair continues its downward trajectory, trading around 141.30 in the Asian session on Thursday. This decline is attributed to the release of improved Japanese trade data for November, which bolstered the Japanese Yen (JPY). Specifically, Japan’s Ministry of Economy, Trade and Industry reported a significant improvement in Retail Trade and Industrial Production, painting a more robust picture of the Japanese economy.

BoJ’s Cautious Stance on Policy Unwinding

Despite the positive economic data, remarks from Bank of Japan (BoJ) Governor Kazuo Ueda have introduced a cautious note. On Wednesday, Ueda emphasized the lack of urgency in unwinding the ultra-loose monetary policy, pointing to the low risk of inflation exceeding the 2% target. His comments suggest a continuation of the current accommodative policy, which could potentially weigh on the JPY in the near term.

Fed's Expected Rate Cuts Weakening the USD

Conversely, the US Dollar (USD) faces pressure from market expectations of Federal Reserve (Fed) rate cuts in early 2024. Following the Fed’s policy shift in December, speculation has grown around the possibility of up to three rate cuts by the end of 2024, amounting to a total of 75 basis points. This dovish pivot is contributing to the USD's weakening against the JPY.

US Manufacturing Data Influencing Market Sentiment

Adding to the complex market dynamics, the US Richmond Fed Manufacturing Index showed a sharper-than-expected decline in December. The 11-point drop, following a 5-point decrease in November, signals a contraction in manufacturing activity, which could influence market perceptions of the US economic condition. Investors are now poised to analyze the Initial Jobless Claims and Pending Home Sales data due on Thursday for further insights into the US economy's health.

Global Economic Landscape Impacting USD/JPY Movements

The interplay between Japan's economic resurgence and the Fed’s dovish stance creates a nuanced backdrop for the USD/JPY pair. As traders digest the latest economic data and central bank policies, the currency pair’s movements will be closely monitored. The combination of improved Japanese economic indicators and expectations of Fed rate cuts presents a challenging environment for market participants navigating the USD/JPY trajectory.

USD/JPY Price Chart – Source: Tradingview
USD/JPY Price Chart – Source: Tradingview

USD/JPY - Technical Analysis

The USD/JPY currency pair, a pivotal player in the forex market, is currently experiencing some downward movement. As of December 28, the pair is trading at 141.270, marking a decline of 0.39%. This movement provides a deeper insight into the pair's current position and potential future trajectory.

The pair finds its immediate resistance at 141.22, with subsequent resistance levels at 143.09 and 144.31. These levels are crucial in determining the pair's ability to rebound and push higher. Conversely, the immediate support for USD/JPY is stationed at 139.96, followed by further support at 138.09 and 136.35. These support levels will be key in preventing further declines.

The Relative Strength Index (RSI) for USD/JPY is at 30, indicating that the pair is currently in the oversold territory. This suggests that there might be a potential for a rebound as the pair could be undervalued at these levels. The Moving Average Convergence Divergence (MACD) stands at -0.09, which is below its signal line at -0.31, hinting at potential downward pressure. However, the pair is currently trading below its 50-Day Exponential Moving Average (EMA) of 141.96, suggesting a bearish trend in the short term.

In summary, the USD/JPY pair's current market trend leans towards a bearish sentiment. However, considering the oversold condition indicated by the RSI, there could be potential for a rebound. Traders might consider a buy limit entry at 141.011, with a take-profit target at 142.330 and a stop-loss at 140.190, expecting the pair to test these resistance levels in the upcoming days.

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