USD/JPY Price Analysis – Nov 07, 2024
Daily Price Outlook
During the European trading session, the USD/JPY pair has been showing a bearish trend, with the Japanese Yen (JPY) strengthening against the US Dollar (USD). However, the reason behind this move is the growing speculation that the Japanese government might intervene in the foreign exchange market to support the weakening Yen.
This has raised concerns that Japanese authorities could step in, adding pressure on the USD/JPY pair. On top of that, a slight pullback in the US Dollar has also contributed to the downward momentum, leading to a small dip from the pair’s recent highs.
Japanese Yen Faces Mixed Outlook Amid Intervention Concerns and BoJ Uncertainty
As we mentioned, the Japanese Yen has gained support recently due to concerns over potential government intervention. Japanese officials, including Chief Cabinet Secretary Yoshimasa Hayashi and Vice Finance Minister Atsushi Mimura, have increasingly expressed vigilance regarding currency movements.
Mimura specifically noted that the government is prepared to act against excessive speculative behavior in the FX market.
This heightened sense of urgency from Japanese authorities has bolstered confidence in the Yen, as traders anticipate potential intervention to prevent further depreciation. As a result, the USD/JPY pair is facing resistance, with the Yen gaining strength amid these intervention concerns.
Despite receiving some support from fears of intervention, the Japanese Yen faces significant challenges due to the ongoing uncertainty surrounding the Bank of Japan’s (BoJ) rate-hike plans.
The BoJ has remained cautious about raising interest rates, citing concerns over global economic risks, particularly from the US. This hesitation has limited the Yen’s ability to gain ground against the US Dollar.
Moreover, the current risk-on environment, fueled by optimism in global equity markets, further undermines the Yen. As investors gravitate toward higher yields and riskier assets, demand for the low-yielding Yen diminishes, restricting any potential recovery. As a result, these factors continue to weigh on the USD/JPY pair, leaving it vulnerable to fluctuations.
US Dollar Strengthens Amid Republican Success, Boosting USD/JPY Outlook
On the US front, the US dollar saw a strong rally, boosted by the Republican party's success, with markets giving them a 93% chance of winning the House. This raised expectations that Donald Trump could push his policies forward, strengthening the dollar.
Investors reacted by buying the dollar, increasing their expectations for a slower pace of Fed rate cuts, and selling US Treasury bonds. As a result, US stocks rose, and the market started pricing in higher inflation and slower rate cuts.
This situation put pressure on the Japanese yen, as the widening interest rate differential between the US and Japan continued to favor the US dollar.
Therefore, the strong rally in the US dollar, driven by expectations of slower Fed rate cuts and higher inflation, has widened the interest rate gap between the US and Japan. This pressure on the Japanese yen suggests that the USD/JPY pair may continue to rise.
USD/PJPY – Technical Analysis
USD/JPY is trading slightly lower at ¥154.053, displaying a bearish bias as it approaches a critical pivot point at ¥155.155. This level will serve as a key decision point for traders, with a potential reversal or further decline hinging on whether the pair can hold or breach this mark.
The immediate resistance stands at ¥155.557, followed by the next barriers at ¥155.984. A break above these levels would indicate a reversal back to bullish sentiment. However, with current momentum skewed to the downside, resistance appears unlikely to be tested unless the pair finds a solid footing above the pivot.
On the downside, USD/JPY has immediate support at ¥153.907, a level closely aligned with the 50-day Exponential Moving Average (EMA) of ¥153.307, which reinforces the pair’s lower boundary. Should this support level fail to hold, traders may see further declines towards ¥153.415 and then ¥153.008.
The Relative Strength Index (RSI) sits at 49, indicating neutral momentum. However, a reading near 50 suggests a potential shift is forthcoming; a dip below this could strengthen bearish sentiment.
In conclusion, USD/JPY remains vulnerable to further losses below the pivot level of ¥155.155. Traders may consider short positions below ¥154.245, aiming for a target near ¥153.425 with a stop loss at ¥154.935.
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