USD/JPY Price Analysis – Jan 18, 2024

Daily Price Outlook

Despite expectations that the Bank of Japan (BoJ) will maintain its dovish stance, the USD/JPY currency pair failed to halt its downward trend and remained under pressure around the $147.86 level. The decline can be attributed to a weakening US dollar, influenced by robust U.S. retail sales data that raised doubts about early rate cuts by the Federal Reserve. Additionally, concerns about heightened military activity in the Middle East and ongoing economic challenges in China are affecting investor sentiment. Traders are also adjusting their positions ahead of Japan's consumer inflation data release on Friday, contributing to losses in the USD/JPY currency pair.

Positive US Economic Data Strengthens USD and Supports USD/JPY Pair

It is worth noting that positive US economic data on Wednesday alleviated concerns about the Federal Reserve changing its policies in March. The Commerce Department revealed that US retail sales increased more than expected by 0.6% in December, surpassing estimates even when excluding auto sales. This shows that people are spending more, and the US economy is doing well. Fed Governor Christopher Waller highlighted the need to be cautious about cutting interest rates unless there's clear proof of ongoing lower inflation. The yield on the 10-year US government bond crossed 4%, helping the US Dollar.

Therefore, the positive US economic data boosted the US Dollar, but the USD/JPY pair faced pressure due to cautious Fed stance and global uncertainties.

Impacts of Geopolitical Tensions on USD/JPY Pair and Investor Sentiment

Furthermore, tensions surrounding the Israel-Hamas conflict and slow economic growth in China make investors cautious about riskier assets. This supports the safe-haven Japanese Yen, constraining the USD/JPY pair. Recent events, such as Yemen's Houthi rebels targeting a US-owned cargo ship with a kamikaze drone, contribute to geopolitical concerns.

Besides this, Pakistan conducted military strikes against terrorist hideouts in Iran's Sistan-Baluchistan province, asserting its commitment to protecting its people. Despite China's economy growing at 5.2% in Q4 2023, a property crisis, deflation risks, and weak demand cast doubts on its recovery. Traders are now monitoring US economic data, but attention remains on Japan's upcoming consumer inflation figures on Friday.

Therefore, tensions in the Israel-Hamas conflict, economic concerns in China, and geopolitical events have led investors to prefer the safe-haven Japanese Yen, limiting the USD/JPY pair's upward potential.

USD/JPY - Technical Analysis

As of January 18, the USD/JPY is witnessing a slight downtrend, currently positioned at 148, marking a decrease of 0.11%. The 4-hour chart analysis identifies a pivotal point at 144.95. The pair faces immediate resistance at 146.47, with further barriers at 147.87 and 149.34. On the support side, it finds initial support at 143.42, followed by 141.96 and 140.37.

The Relative Strength Index (RSI) stands at 74, indicating that the pair may be approaching overbought territory, potentially leading to a pullback. The Moving Average Convergence Divergence (MACD) is currently at 0.09, with the signal line at 0.774, suggesting a potential for upward momentum but warranting caution given the high RSI.

The 50-Day Exponential Moving Average (EMA) is at 147.70, indicating potential resistance for the pair. The observed chart pattern shows an upward channel, supporting the current uptrend, yet a double top pattern near 148.50 suggests significant resistance.

The overall trend for USD/JPY appears to be at a critical juncture, with a short-term bearish outlook. Traders might consider a sell limit at 148.500, with a take profit target of 147.100 and a stop loss at 149.350. In the near term, the pair is expected to test its resistance levels, particularly if it moves beyond the current resistance point.

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