Technical Analysis

USD/JPY Price Analysis – Jan 04, 2024

By LonghornFX Technical Analysis
Jan 4, 20243 min

Daily Price Outlook

The USD/JPY currency pair has sustained its upward trend, attracting additional bids above the 143.50 level. The driving force behind this upward movement can be attributed to the devastating earthquake in central Japan, which is perceived as a significant factor undermining the domestic currency. This, coupled with the ongoing recovery of the US Dollar (USD) from a multi-month low, supported by a further increase in US Treasury bond yields, is strengthening the USD/JPY pair.

On the flip side, concerns about a potential escalation of geopolitical tensions in the Middle East and a sluggish economic recovery in China are dampening investor sentiment. This is evident in the generally weaker tone observed in equity markets. Additionally, the growing conviction that the Bank of Japan (BoJ) may deviate from its ultra-loose policy settings is providing support to the safe-haven Japanese Yen (JPY).

Meanwhile, the Japanese Yen (JPY) is expected to avoid substantial losses due to anticipated changes in the Bank of Japan's (BoJ) policy. This shift is likely to happen around April following March's annual wage negotiations, with the possibility of an earlier move in January. In contrast, the Federal Reserve (Fed) is projected to carry out a series of interest rate cuts in 2024, possibly commencing as early as March. This could curtail the rise in US bond yields and the strength of the US Dollar (USD).

Traders Exercise Caution Ahead of NFP Report, Eyeing Economic Indicators for Insight

Looking forward, traders are cautious about making big bets and are waiting for clarity on the Federal Reserve's future policies. The focus is on Friday's release of the Nonfarm Payrolls (NFP) report for insights. Traders are closely monitoring these indicators to gauge the job market and anticipate potential market moves.

USDJPY Pair Gains Amid Yen Weakening and Policy Divergence Expectations

Furthermore, the Japanese Yen experienced a weakening trend against the US Dollar, influenced by various factors, including the seventh consecutive contraction in the au Jibun Bank Japan Manufacturing PMI, which plummeted to a low of 47.9 in December. Despite this, the Yen finds some support from expectations of a shift in policy alignment between the Bank of Japan (BoJ) and the Federal Reserve (Fed) in 2024.

The recently released FOMC minutes indicated consensus on maintaining controlled inflation, although they lacked clear indications of potential rate cuts, thereby supporting US bond yields and the Dollar. In the US, the ISM Manufacturing PMI showed a slight improvement, and job listings dropped to 8.79 million in November. Investors are eagerly anticipating the US ADP report and the pivotal Nonfarm Payrolls (NFP) report scheduled for release on Friday.

Therefore, the USDJPY pair experienced gains as the Japanese Yen declined against the US Dollar. Factors include poor Japan Manufacturing PMI, expectations of policy divergence, and the FOMC minutes favoring the Dollar.

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

USD/JPY - Technical Analysis

The USD/JPY pair exhibits a bullish trend on Thursday, January 4, as it trades at 143.226, marking a 0.25% increase. The currency pair faces significant technical levels, with the pivot point at 141.43. Immediate resistance is observed at 142.52, followed by higher levels at 143.97 and 145.16.

In contrast, support lies at 139.94, 138.74, and 137.35. The Relative Strength Index (RSI) at 67 suggests bullish sentiment, nearing overbought conditions. The MACD at 0.2380 signals upward momentum, indicating potential bullish trends.

The pair's position above the 50-Day EMA of 142.97 further supports the current bullish outlook. However, traders should monitor key resistance levels for signs of a reversal or continued bullish trend.

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