As the holiday season unfolds, key economic data and central bank actions take center stage. The US reports on unemployment claims and crude oil inventories, while Japan's Tokyo Core CPI offers insight into inflation trends.
The USDJPY pair maintains a bullish trajectory, supported by technical patterns and strong dollar demand. Meanwhile, the Federal Reserve's gradual easing contrasts with the Bank of Japan's unexpected decision to hold rates steady, shaping market sentiment during this festive period.
Overview
As the holiday season unfolds, key economic data and central bank actions take center stage. The US reports on unemployment claims and crude oil inventories, while Japan's Tokyo Core CPI offers insight into inflation trends.
The USDJPY pair maintains a bullish trajectory, supported by technical patterns and strong dollar demand. Meanwhile, the Federal Reserve's gradual easing contrasts with the Bank of Japan's unexpected decision to hold rates steady, shaping market sentiment during this festive period.
Key Economic Events
Thursday 15:30 (GMT+2) - USA: Unemployment Claims (USD)
Thursday 18:00 (GMT+2) - USA: Crude Oil Inventories (USD)
Friday 01:50 am (GMT+2) - Japan: Tokyo Core CPI y/y (JPY)
Technical Analysis
Since recovering from the December 3 low of 148.640, the USDJPY currency pair has exhibited a robust upward trend, gaining over 6% from its recent low and 11.39% year-to-date. This sustained bullish momentum reflects strong demand for the dollar against the yen, driven by macroeconomic factors and positive investor sentiment.
The price action has formed a failure swing reversal pattern, with a breakout above the significant weekly resistance level at 156.742, further accelerating the uptrend. Specifically, the trough at 148.640 held above the prior trough, followed by a breach of the 156.742 peak, indicating the potential for continued upward movement.
Supporting this bullish outlook, technical indicators such as the Momentum Oscillator and Relative Strength Index (RSI) remain firmly above their neutral thresholds of 100 and 50, respectively, signaling increasing upward pressure and the likelihood of further gains.
Potential Upside Targets
Should the bulls maintain market control, traders may direct their attention toward the four potential resistance levels below:
157.921: The initial price target is 157.921, which represents the daily high marked on December 20.
160.605: The second price target is identified at 160.605, corresponding to the weekly resistance, R2, calculated using the Pivot Points methodology.
161.749: The third target is established at 161.749, aligning with the 161.8% Fibonacci Extension drawn from the swing high, 156.742, to the swing low, 148.640.
169.851: An additional price target is estimated at 169.851, which corresponds to the 261.8% Fibonacci Extension drawn from the swing high, 156.742, to the swing low, 148.640.
Potential Downside Targets
Should the sellers take market control, traders may consider the four potential support levels listed below:
156.742: The first level of support is determined at 156.742, representing the swing high from November 15.
155.837: The second support level is identified at 155.837, reflecting the weekly Pivot Point, PP, calculated using the standard methodology.
153.753: The third support is 153.753, mirroring the weekly support, S1, estimated using the standard Pivot Points methodology.
150.911: An additional downward target is observed at 150.911, corresponding to the 38.2% Fibonacci Retracement drawn from the low point, 139.571, to the high point, 157.921.
Fundamentals
The Federal Reserve reduced interest rates by 25 basis points, signaling progress toward its dual mandate of maximum employment and price stability. Markets initially reacted negatively, declining nearly 3% on the announcement, but began to recover by Thursday. While the Fed's statement introduced minimal changes, it added a new qualifier regarding the "extent and timing" of future rate cuts, indicating a potentially slower pace of easing in 2025 than previously expected.
The Summary of Economic Projections highlighted upward revisions to policymakers' growth and inflation forecasts for 2025, alongside a lower projected unemployment rate, reflecting stronger-than-anticipated economic growth. Notably, the forecast for core inflation was adjusted higher, from 2.2% to 2.5%.
Looking ahead, the Fed is expected to continue its gradual easing approach in 2025, aiming to normalize policy while supporting a cooling labor market. However, sequential rate cuts are unlikely, as the central bank remains cautious in approaching the neutral rate.
On the other hand, the Bank of Japan (BOJ) opted to maintain its benchmark interest rate at 0.25% during its Thursday meeting, defying expectations of a 25-basis-point hike projected by economists.
Conclusion
In conclusion, as the holiday season shapes market dynamics, economic data, and central bank decisions remain pivotal in guiding investor sentiment. The USDJPY continues its strong bullish momentum, reflecting robust demand for the dollar amid diverging monetary policies between the Federal Reserve and the Bank of Japan. With critical resistance and support levels in focus, traders are poised to navigate opportunities and risks in a market influenced by evolving economic trends and policy outlooks.