Technical Analysis

USD/JPY Price Analysis – May 23, 2024

By LonghornFX Technical Analysis
May 23, 20244 min

Daily Price Outlook

Despite the bullish U.S. dollar, the USD/JPY currency pair has been unable to break its downward trend, remaining well-offered around the 156.70 level and hitting an intraday low of 156.56. The bearish bias in the currency pair can be attributed to multiple factors, including Japan’s stable bond purchasing strategy, an improving manufacturing sector, and the Federal Open Market Committee's (FOMC) cautious approach to interest rate cuts. These factors collectively contribute to the recent performance of the USD/JPY.

However, the recent policy decisions by the Bank of Japan (BoJ) boosted the Japanese yen and contributed to the USD/JPY currency pair declines. The BoJ's announcement that it would maintain the amounts of Japanese government bonds (JGB) purchased in its latest operation reflects a deliberate strategy following a previous reduction in bond purchases of 5-10 year bonds over a month ago. This stability in bond purchasing signals a cautious or "hawkish" approach by the BoJ, indicating a reluctance to pursue further monetary easing measures.

On the other hand, the heightened geopolitical tensions, particularly those involving China and Taiwan, have fueled investor demand for safe-haven assets like the JPY. As a result, the USD/JPY pair has experienced bearish pressure.

Japan's Manufacturing PMI and Its Impact on USD/JPY Pair

Another factor impacting the USD/JPY currency pair is the recent improvement in Japan's Manufacturing Purchasing Managers Index (PMI). In May, Japan’s Manufacturing PMI rose to 50.5, up from April’s 49.6, according to data released by Jibun Bank and S&P Global. This rise marks the first expansion in manufacturing activity since May 2023, indicating a positive shift in Japan's economic outlook.

Meanwhile, the PMI surpassing market expectations of 49.7 suggests that manufacturing activity is recovering, which can boost investor confidence in the Japanese economy. As a result, a stronger manufacturing sector can lead to an appreciation of the JPY, exerting downward pressure on the USD/JPY pair.

FOMC Minutes and Their Impact on USD/JPY Pair

On the flip side, the broad-based US dollar has shown a bullish bias, particularly following the release of the latest Federal Open Market Committee (FOMC) minutes. These minutes unveiled that Federal Reserve policymakers have concerns regarding the persistent nature of inflation, which hasn't waned as swiftly as expected. This prolonged inflation has prompted the Fed to adopt a cautious stance toward interest rate cuts.

Therefore, the US dollar has strengthened due to the Fed's caution on inflation, but the JPY's strength, supported by Japan's improving economy and stable BoJ policies, counteracts, maintaining a bearish trend for USD/JPY.

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

USD/JPY - Technical Analysis

The USD/JPY is currently trading at $156.75, down 0.02% for the day. The 4-hour chart indicates a pivot point at $156.87. Key resistance levels are $157.97, $158.98, and $159.97, while immediate support levels are $155.80, $154.61, and $153.43.

The Relative Strength Index (RSI) is at 65, suggesting that the pair is approaching overbought territory. This could indicate a potential pullback in the short term. The 50-day Exponential Moving Average (EMA) is at $155.94, providing a key support level that, if breached, could signal further downside.

Technically, the USD/JPY shows signs of potential bearish movement as it trades just below the pivot point. A recommended strategy is to sell below $156.87, targeting a take-profit level of $155.80 and setting a stop loss at $157.75. This approach leverages the potential for a correction from the current overbought conditions while managing risk.

Despite the minor decline today, the overall sentiment appears cautiously bearish given the RSI and the proximity to the pivot point. Should the USD/JPY break below immediate support at $155.80, further declines towards $154.61 and $153.43 are plausible. Conversely, a break above $156.87 could test the resistance levels at $157.97 and $158.98.

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