With key economic data on the horizon, including Canada's employment change and the US nonfarm payrolls, market participants are closely monitoring developments that could influence global currency dynamics. The USDJPY pair has recently demonstrated a bearish trend, marked by key technical shifts and the emergence of new support and resistance levels.
Adding to the mix, geopolitical factors such as Japan's trade negotiations with the incoming US administration and fluctuations in the US trade deficit provide critical insights into potential market directions. These elements underscore the importance of aligning technical and fundamental strategies in navigating the current landscape.
Overview
With key economic data on the horizon, including Canada's employment change and the US nonfarm payrolls, market participants are closely monitoring developments that could influence global currency dynamics. The USDJPY pair has recently demonstrated a bearish trend, marked by key technical shifts and the emergence of new support and resistance levels.
Adding to the mix, geopolitical factors such as Japan's trade negotiations with the incoming US administration and fluctuations in the US trade deficit provide critical insights into potential market directions. These elements underscore the importance of aligning technical and fundamental strategies in navigating the current landscape.
Key Economic Events
Friday 15:30 (GMT+2) - Canada: Employment Change (CAD)
Friday 15:30 (GMT+2) - USA: Nonfarm Employment Change (USD)
Technical Analysis
Since reaching a high of 156.742 on November 15, the USDJPY currency pair has exhibited a bearish trajectory. The price action formed a failure swing reversal pattern, breaking below the 50-period Exponential Moving Average (EMA), which has accelerated the downward momentum. Notably, the peak at 155.879 failed to exceed the prior high and then dropped below the trough at 153.273, signaling the potential for further declines. Furthermore, key indicators such as the Momentum Oscillator and Relative Strength Index (RSI) have both fallen below their neutral thresholds of 100 and 50, respectively, confirming weakening bullish pressure.
Potential Upside Targets
Should the bulls take market control, traders may direct their attention toward the four potential resistance levels below:
151.264: The initial resistance is 151.264, which represents the weekly Pivot Point, PP, calculated using the standard methodology.
153.273: The second price target is identified at 153.273, corresponding to the swing low from November 19.
156.742: The third target is established at 156.742, aligning with the daily high marked November 15.
158.331: An additional price target is estimated at 158.331, which corresponds to the weekly resistance, R3, calculated using the standard Pivot Points methodology.
Potential Downside Targets
Should the sellers maintain market control, traders may consider the four potential support levels listed below:
148.640: The first level of support is determined at 148.640, representing a swing low from December 3.
146.005: The second support level is identified at 146.005, reflecting the weekly support, S2, calculated using the Pivot Points methodology.
144.840: The third support level is seen at 144.840, corresponding to the 423.6% Fibonacci Extension drawn from the low point, 153.273, to the high point, 155.879.
141.641: An additional downward target is observed at 141.641, corresponding to the swing low from September 30.
Fundamentals
Japanese Foreign Minister Takeshi Iwaya announced that Japan plans to resume trade talks with President-elect Donald Trump, focusing on eliminating tariffs on cars and auto parts. This aligns with a prior understanding during Trump's first term, where Japan avoided additional auto tariffs while granting US farmers better market access. With the US as Japan's top export destination, accounting for a third of shipments in 2023, Tokyo is strategizing to address potential protectionist policies, including Trump's proposed 10–20% tariffs on imports. Prime Minister Shigeru Ishiba aims to build diplomatic ties following the successful relationship between Trump and the late Shinzo Abe.
On the other hand, the US trade deficit narrowed by nearly 12% in October to $73.8 billion, the lowest level in over two years, driven by a significant 4% decline in imports to $339.6 billion. Imports of consumer goods, business equipment, industrial supplies, motor vehicles, and food all fell, reflecting reduced demand after companies stockpiled ahead of the holiday season. Exports also dropped by 1.6%, though services exports hit a record $95.1 billion. Looking ahead, the trade gap could widen if businesses boost imports to preempt President-elect Donald Trump's proposed tariffs or if the strong US dollar dampens demand for American goods.
Conclusion
As global markets prepare for key economic data releases, the interplay of technical trends and geopolitical developments remains pivotal in shaping currency dynamics. The bearish outlook for USDJPY, marked by significant technical levels and declining momentum, highlights the importance of closely monitoring market movements. Meanwhile, Japan's trade negotiations with the incoming US administration and shifts in the US trade balance provide critical fundamental insights. Aligning technical strategies with these evolving fundamentals will be essential for navigating the current market landscape effectively.