USDJPY Forecast: The Dollar's Winning Streak Why New Highs Could Be At Hand - InvestingCube
The US dollar has been on a roll against the Japanese yen, winning four sessions in a row and getting the USD/JPY bulls excited. As of this writing, the currency pair’s exchange rate is at 152.70, which is a...
The US dollar has been on a roll against the Japanese yen, winning four sessions in a row and getting the USD/JPY bulls excited. As of this writing, the currency pair’s exchange rate is at 152.70, which is a solid 0.5% rise from the previous 24 hours. But what is really propelling the gains?
Why Is the USD/JPY Rising?
The main reason the dollar is going up is that the US currently offers better interest rates than Japan. Even though there have been some recent dovish noises, the Federal Reserve has kept its policy rate high to fight inflation. The Bank of Japan (BoJ), on the other hand, is adhering to its very loose monetary policy, which includes keeping interest rates low and its unusual Yield Curve Control program.
But can this rally last? In all honestly, it feels a little uncertain in the long run. the yen’s weakness seems to be based on short-term sentiment, as it is no longer linked to US-Japan yields. If the BoJ keeps its tightening trend, they could surprise everyone with a rate hike, which could stop the dollar’s advances. If that happens, it could weaken the USD’s edge.
Meanwhile, the Japanese Ministry of Finance has a history of stepping in to stop the yen from getting too weak. We saw that intervention last year when the JPY weakened substantially to historical lows against the greenback. The market is getting more and more concerned about the prospect of Japanese officials directly stealthily intervening if the USD/JPY pair hits psychological highs. Just recently, Reuters brought attention to the increased risk of intervention as the pair crosses important thresholds.
Technical Outlook for USDJPY
USDJPY is having trouble getting over 153, and there are hints that it is becoming overbought (RSI at 63.38), which could lead to a pullback. So, yes, the current momentum might end if sentiment changes. But for now, the fundamentals point to an upside, possibly to 154.
The 153.00-153.50 range represent a key zone of resistance. If buyers can break through and stay above there, the pair could enter new territory. On the other hand, the round figure of 152.00 is a key psychological support level. However, a more important line is probably around the 150.69 area, around the 20-day Exponential Moving Average (EMA). Breaking below that level could indicate a reversal that could potentially go on to test 150.00.
USDJPY daily chart with the RSI, 20 and 50 EMA levels. Source: TradingView
See also
Why is the USDJPY rising?
The USDJPY currency pair is primarily rising because of continued loose monetary policy by the Bank of Japan and a higher interest rest regime in the US.
What could lead to a reversal in the pair’s uptrend?
The prospect of Fed interest rate cut is rising on the one hand, and on the other hand, the Japanese Ministry of Finance is likely to intervene to limit the yen’s losses as seen in previous years.
What are the key levels of resistance and support for USDJPY?
Immediate resistance is at 153-153.50. However, action above that level could potentially clear the path to test 154. On the other hand, there’s immediate support at 150.00 and a second support at 150.69
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