Technical Analysis

USD/JPY Price Analysis – May 16, 2024

By LonghornFX Technical Analysis
May 16, 20244 min

Daily Price Outlook

During the European trading session, the USD/JPY currency pair has shown a mild bullish performance recently, bouncing back from its low near 155.20. This upward trend can be attributed to several factors including the stabilization of the US dollar following a notable decline. The greenback had faced pressure due to decline in the United States Consumer Price Index (CPI) data for April. However, as the US Dollar stabilized, the USD/JPY pair found buying interest, leading to its recovery.

Investor sentiment also contributed to the pair's upward movement. There's a growing belief among investors that the Federal Reserve (Fed) might initiate interest rate cuts, possibly beginning with the September meeting. This conviction has been bolstered by recent data showing a decrease in both headline and core CPI figures. The likelihood of interest rate reductions in September, as suggested by the CME Fedwatch tool, has risen, indicating enhanced investor confidence in the possibility of rate cuts.

Impact of the US Dollar Resurgence and Fed's Dovish Stance on USD/JPY Pair

On the US front, the resurgence of the US Dollar has played a crucial role in shaping the performance of the USD/JPY pair. Following a notable drop driven by anticipations of diminished CPI data, the greenback found stability. This stabilization occurred even amidst apprehensions that a singular decrease in price pressures might not be adequate to justify prolonged inflation below the Fed's 2% target.

However, the dovish stance of the Fed has also impacted the performance of the USD/JPY pair. While the probability of interest rate cuts in September has increased, Fed policymakers are not expected to immediately endorse such cuts. The uncertainty surrounding future monetary policy decisions has contributed to fluctuations in the USD/JPY pair.

Meanwhile, the previous US economic data, particularly the decline in CPI figures, had initially weighed on the US Dollar. However, the currency's recovery suggests that investors are reassessing their expectations and adjusting their positions accordingly, leading to a mild bullish performance in the USD/JPY pair.

Challenges in the Japanese Economy and Implications for USD/JPY Pair

On the other hand, the Japanese economy has faced challenges, particularly in the first quarter of this year. Preliminary Gross Domestic Product (GDP) data revealed a faster contraction than anticipated, with the economy shrinking by 0.5%. This contraction has raised concerns about the Bank of Japan's plans to extend its policy-tightening cycle.

Therefore, the weakening of the Japanese economy has implications for the USD/JPY pair. A contracting economy could dampen investor confidence in the Japanese Yen, leading to a relative strengthening of the US Dollar against the Yen.

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

USD/JPY - Technical Analysis

USD/JPY is currently trading at $154.324, down 0.38% from the previous session. The 4-hour chart provides a detailed view of key price levels and technical indicators, essential for guiding trading decisions.

The pivot point for USD/JPY is at $154.77. Immediate resistance levels are observed at $155.76, $156.83, and $157.96. On the downside, immediate support levels are identified at $152.86, $151.91, and $150.80.

The Relative Strength Index (RSI) stands at 34, indicating that the market is nearing oversold conditions. This suggests a possible rebound if the selling pressure diminishes.

The 50-day Exponential Moving Average (EMA) is positioned at $155.31, providing a near-term resistance level that the pair needs to overcome to resume its upward trend.

Given these technical factors, a strategic trading approach is advised. Selling below the pivot point of $155.045 could be advantageous, targeting a take-profit level of $152.882 and setting a stop-loss at $157.045.

The RSI nearing oversold territory suggests that the current downward trend might face challenges if the support levels hold.

A failure to breach the resistance at $155.76 could result in a pullback toward the support at $152.86 or even lower. Market participants should remain vigilant for any shifts in sentiment that could alter the trading landscape.

A strategic approach would be to sell below $155.045 with a take-profit target at $152.882 and a stop-loss at $157.045.

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