The USD/JPY has experienced a rally exceeding 5% since the February low, reaching new yearly highs before encountering resistance just beneath the 160 mark. The current price is situated within the range established last week, and the observed momentum divergence indicates that the upward movement may be weakening—watch for a breakout to provide direction. Next week presents significant event risk with Japan’s CPI and US retail sales, along with ADP and NFP data scheduled for release. Resistance levels are at 160, 160.73, and 161.95 (key) – Support levels are at 157.70, 156.67, and 154.79-155.07 (key). The USD/JPY has shown upward momentum in recent weeks, gradually recovering and nearing a significant psychological threshold around 160. The rally has demonstrated strength; however, the price is currently consolidating below this level after not managing to push gains into new yearly highs. The current momentum is beginning to exhibit signs of fatigue, and with the pair remaining within a specified range, the market is nearing a pivotal juncture. A decisive break above this level would strengthen the bullish trend, while a failure to follow through could lead to a period of consolidation or a more significant pullback. Clear divisions are established on the weekly technical chart for USD/JPY.
In the previous month’s Japanese Yen Technical Forecast, we observed that USD/JPY was approaching, “resistance into the close of the week / month, and the attention is on a potential inflection off this zone in the upcoming days. From a trading perspective, losses ought to be confined to 154.79 if the price is advancing during this period, with a close above 156.67 required to initiate another push towards the yearly peaks. Resistance was breached the subsequent week, with USD/JPY advancing over 5% from the February lows to reach a new yearly peak. The advance has encountered resistance just before reaching the 160-handle, and the developing momentum divergence indicates that this upward movement may be at risk. The price remains within the range established last week; anticipate that a breakout will provide direction in the near term. A topside breach reveals resistance objectives at the 2024 high-week close of 160.74, closely supported by the 2024 swing high of 161.95. It is important to observe that the channel resistance is converging on this threshold this week – anticipate a more significant reaction if this level is attained. Subsequent resistance is observed at the 1.618% extension of the 2025 advance at 163.33.
Initial weekly support is positioned at the 2025 HWC level of 157.70, reinforced by the objective yearly open at 156.67. The primary support level and overall bullish invalidation are anchored at the yearly low-week close and the 61.8% retracement of the February rally, specifically within the range of 154.79-155.08. A break or weekly close beneath this threshold would be necessary to indicate that a more substantial high has been established and that a larger trend reversal is in progress. The USD/JPY is striving to break through the highs of the yearly opening range, with attention directed towards the movement towards 160. From a trading perspective, losses ought to be confined to 157.70, provided that the price is moving upward during this phase, with a breach of the monthly highs required to propel the next stage of the upward movement.
It is important to note that we will see the release of Japan’s CPI early next week, alongside the US ADP employment figures, retail sales, and Non-Farm Payrolls as we approach the monthly cross. The current market sentiment indicates that any potential rate cuts this year have been fully priced in, with Fed fund futures suggesting a 40% likelihood of a rate hike by October. As worries grow that rising energy costs will contribute to persistent inflation, the employment figures will play a pivotal role in shaping the Federal Reserve’s forthcoming decisions. A disappointing employment report could dampen projections for increased interest rates in the near future. In the interim, market sentiment will predominantly be influenced by developments in the Middle East concerning the conflict involving Iran. Monitor the headlines closely and pay attention to the weekly close for insights. Examine my most recent analysis of the Japanese Yen for an in-depth perspective on the immediate USD/JPY technical trade levels.