USDJPY: Bullish Outlook

24. Juni

USD/JPY Analysis

1. Recent Performance
Current Trend: USD/JPY trades around 159.70 on Monday, maintaining a bullish bias. The pair is testing the upper boundary of an ascending channel pattern on the daily chart.
Japanese Yen Stability: The Japanese Yen (JPY) holds its ground, likely due to verbal intervention by Japanese authorities. Masato Kanda, Japan's top currency diplomat, stated his readiness to intervene around the clock if necessary to prevent excessive movements in the forex market.

2. Technical Analysis
Bullish Indicators:
The 14-day Relative Strength Index (RSI) is above the 50 level, indicating upward momentum.
Surpassing the upper threshold of the ascending channel pattern will reinforce the bullish sentiment, potentially pushing the pair toward 160.32, a major resistance level last seen in April, marking the highest level in over thirty years.
Support Levels:
Immediate support is at the nine-day Exponential Moving Average (EMA) at 158.42.
A breach below this level could increase downward pressure on USD/JPY, targeting the lower boundary of the ascending channel around 155.60.
Further support is at the throwback level of 152.80, which could be tested if the lower boundary is broken.

3. Fundamental Context
US Dollar Dynamics:
The US Dollar Index (DXY) has edged lower due to a decline in yields on US Treasury bonds. However, the downside for the USD may be limited as higher-than-expected US PMI data has delayed expectations for the first interest rate cut by the Federal Reserve (Fed) in 2024.
According to the CME FedWatch Tool, the probability of a Fed rate cut in September is now priced at 65.9%, down from 70.2% a week earlier.
Yield Differentials:
Despite lower US Treasury yields, USD/JPY remains near 160, driven by the large yield differentials. Value investors are deterred by carry traders, suggesting that significant rate cuts by the Fed might be necessary to change this dynamic.
The Bank of Japan (BoJ) faces a prolonged period of economic challenges, potentially extending through the summer and autumn.

4. Market Sentiment
Verbal Intervention:
The Japanese authorities, particularly Masato Kanda, have emphasized their readiness to intervene to prevent excessive volatility in the forex market. This stance provides some support to the JPY.
Fed Rate Cut Speculation:
Speculation around the timing of the Fed's interest rate cuts has a significant impact on USD/JPY. Delays in rate cuts support the USD, contributing to the pair's current bullish momentum.

Conclusion
USD/JPY is trading around 159.70 with a bullish outlook, reinforced by technical indicators and the current yield differential environment. Immediate resistance is at 160.32, while support is found at 158.42 and lower at 155.60. The pair's performance is influenced by verbal interventions from Japanese authorities and ongoing speculation regarding the Fed's interest rate policy. Market participants will continue to monitor these factors for further direction.