The USDJPY exchange rate has been under pressure following Japan’s stronger-than-expected inflation data and the Bank of Japan’s (BoJ) rate hike to 0.5%, the highest level since 2008. Meanwhile, the U.S. Federal Reserve kept rates unchanged, maintaining a hawkish stance as inflation edged up to 2.9% in December. This monetary policy divergence is expected to drive further volatility in the currency pair.
Adding to market uncertainty, several key economic events are set to impact trading sentiment. The European Central Bank’s refinancing rate decision, U.S. GDP growth figures, and core inflation data from the U.S. and Europe will be closely watched. Additionally, Canada’s GDP report will offer insights into North American economic trends. With central banks navigating inflation challenges, traders should remain vigilant for potential market shifts.
Overview
The USDJPY exchange rate has been under pressure following Japan’s stronger-than-expected inflation data and the Bank of Japan’s (BoJ) rate hike to 0.5%, the highest level since 2008. Meanwhile, the U.S. Federal Reserve kept rates unchanged, maintaining a hawkish stance as inflation edged up to 2.9% in December. This monetary policy divergence is expected to drive further volatility in the currency pair.
Adding to market uncertainty, several key economic events are set to impact trading sentiment. The European Central Bank’s refinancing rate decision, U.S. GDP growth figures, and core inflation data from the U.S. and Europe will be closely watched. Additionally, Canada’s GDP report will offer insights into North American economic trends. With central banks navigating inflation challenges, traders should remain vigilant for potential market shifts.
Key Economic Events
Thursday 15:15 (GMT+2) - Europe: Main Refinancing Rate (EUR)
Thursday 15:30 (GMT+2) - USA: Advance GDP q/q (USD)
Thursday 15:30 (GMT+2) - USA: Unemployment Claims (USD)
Friday All Day - Europe: German Prelim CPI m/m (EUR)
Friday 15:30 (GMT+2) - Canada: GDP m/m (CAD)
Friday 15:30 (GMT+2) - USA: Core PCE Price Index m/m (USD)
Technical Analysis
After reaching a low of 148.640 on December 3, the USDJPY exchange rate experienced a significant rally, gaining more than 5% in value. This surge was characterized by a "Golden Cross," where the 20-period Exponential Moving Average (EMA) crossed above the 50-period EMA, which intensified the upward momentum.
A bullish failure swing was also observed when the trough of 149.356 failed to drop below the previous trough, allowing for a rally above the critical resistance level of 151.221. This confirmed the upward momentum. However, this bullish momentum proved to be short-lived, and the price peaked at 158.864. The inability of the bulls to push prices higher allowed sellers to take control, leading to a decline triggered by a bearish chart reversal and a "Death Cross," where the 20-period EMA crossed below the 50-period EMA.
Supporting this bearish outlook, technical indicators such as the Momentum Oscillator and the Relative Strength Index (RSI) remain well below their neutral thresholds of 100 and 50, respectively. This indicates increased downward pressure and suggests the likelihood of further declines.
Potential Upside Targets
Should the buyers take market control, traders may direct their attention toward the four potential resistance levels below:
155.813: The initial price target is set at 155.813, which represents the weekly Pivot Point, PP, calculated using the standard methodology.
156.744: The second price target is estimated at 156.744, corresponding to the swing high recorded on January 23.
157.788: The third target is identified at 157.788, aligning with the weekly resistance, R2, calculated using the standard Pivot Points methodology.
158.864: An additional price target is projected at 158.864, which mirrors the daily high from January 10.
Potential Downside Targets
Should the sellers maintain market control, traders may consider the four potential support levels listed below:
153.706: The first level of support is determined at 153.706, representing the daily low from January 27.
152.546: The second support level is identified at 152.546, reflecting the 61.8% Fibonacci Retracement drawn from the low point, 148.640, to the high point, 158.864.
151.221: The third support is 151.221, mirroring the daily high marked December 4.
148.640: An additional downward target is observed at 148.640, corresponding to the trough formed on December 3.
Fundamentals
The USDJPY exchange rate declined following Japan’s stronger-than-expected inflation data and the Bank of Japan’s (BoJ) interest rate hike from 0.25% to 0.5%, the highest level since 2008. With core inflation rising to 3.0%, the BoJ signaled the possibility of further hikes if inflation remains elevated.
Meanwhile, the U.S. Federal Reserve kept interest rates unchanged at its most recent meeting, maintaining a hawkish stance as inflation edged up to 2.9% in December. While the Fed signaled it will hold rates steady for now, markets anticipate a potential rate cut in July if inflation nears the 2% target.
Conclusion
The USDJPY exchange rate remains under pressure as diverging monetary policies between the Bank of Japan and the U.S. Federal Reserve continue to influence market movements. With Japan's inflation rising and the BoJ signaling further rate hikes, alongside the Fed's steady stance on interest rates, volatility is expected to persist.
Key upcoming economic events, including the ECB's rate decision, U.S. GDP figures, and inflation data from both Europe and North America, will be crucial in shaping market sentiment. Meanwhile, technical indicators suggest potential downside risks for USDJPY, with key support and resistance levels in focus.
Traders should stay alert to evolving macroeconomic conditions and central bank decisions, as these factors will likely drive significant movements in the currency markets.