USDJPY Technical Analysis

The USDJPY pair breaks the cycle high and extends the rally above the 153.00 handle. What’s next?

FL Contributors

Friday, 12/04/2024 | 07:14 GMT-0

USD

The Fed left interest rates unchanged as expected at the last meeting with basically no change to the statement. The Dot Plot still showed three rate cuts for 2024 and the economic projections were upgraded with growth and inflation higher and the unemployment rate lower.
The US CPI beat expectations for the third consecutive month, while the US PPI came in line with forecasts.
The US NFP beat expectations across the board although the average hourly earnings came in line with forecasts.
The US ISM Manufacturing PMI beat expectations by a big margin with the prices component continuing to increase, while the US ISM Services PMI missed with the price index dropping to the lowest level in 4 years.
The market now expects the first rate cut in September.

JPY

The BoJ finally exited the negative interest rates policy as expected at the last meeting raising interest rates by 10 bps bringing the rate to a target between 0.00-0.10%. Moreover, the central bank scrapped the yield curve control and the ETF purchases, while maintaining QE in place.
The latest Unemployment Rate missed expectations although it continues to hover around cycle lows.
The Japanese PMIs improved further for both the Manufacturing and Services measures although the former remains in contractionary territory.
The latest Japanese wage data came in line with expectations.
The Tokyo CPI, which is seen as a leading indicator for National CPI, came in line with expectations.
The market expects another rate hike from the BoJ this year although the timing remains uncertain.

USDJPY Technical Analysis – Daily Timeframe

On the daily chart, we can see that USDJPY finally broke out of the consolidation following another hot US CPI report. The breakout of the big ascending triangle could point to much higher prices ahead with the buyers targeting the 160.00 handle. The sellers will need the price to fall back below the 151.92 level to start looking for new lows as the buyers are now in full control.

USDJPY Technical Analysis – 4 hour Timeframe

On the 4 hour chart, we can see that from a risk management perspective, the buyers will have a better risk to reward setup around the trendline where they will also find the 38.2% Fibonacci retracement level for confluence. The sellers, on the other hand, will want to see the price breaking below the trendline and the 151.92 level to invalidate the bullish setup and position for a drop into new lows.

USDJPY Technical Analysis – 1 hour Timeframe

On the 1 hour chart, we can see that the recent price action formed a rising wedge and diverged with the MACD. This is generally a sign of weakening momentum often followed by pullbacks or reversals. In this case, it could be a signal for a pullback into the trendline and the Fibonacci retracement level. Therefore, if the price were to break the wedge to the downside, we can expect the sellers to pile in to position for a drop into the trendline.