Basic overview
Last week we saw the USD/JPY pair fall following the US CPI report as the market shrugged off interest rate hike fears and consolidated the Fed hike for longer. The next day, the Japanese Yen started to lose strength again, as not only does the interest rate differential remain strong, but we also have positive risk sentiment due to the global growth outlook.
In such an environment, the Japanese yen is unlikely to find sustainable demand. The trend is only likely to change when we start getting some recession-related US data which would have the market pricing in a more aggressive path to lower interest rates.
Technical Analysis of USD/JPY – Daily Time Frame
USD/JPY daily
On the daily chart, we can see that the USD/JPY pair is trading in the middle of the major trend line and the 160.00 handle. The price has risen above the key level of 155.00 again recently which acts as a sort of barometer for the pair's sentiment with the price above it remaining more bullish and below it more bearish.
Technical Analysis of USD/JPY – 1 hour time frame
USD/JPY 1 hour
On the hourly chart, we can more clearly see a rise above the key 155.00 level after the US unemployment claims numbers and then an extension to the 156.00 handle. We can see that the 156.00 level is a strong resistance, so a break above it would cause buyers to increase their bullish bets to the 156.80 level next.
On the other hand, sellers will likely rely on this resistance with a specific risk above it to take a position that allows them to fall to the 155.00 level, aiming to break below it. If we get another pullback to the 155.00 level, we can expect buyers to pile in again and target a rise to the 160.00 handle.
Upcoming stimuli
This week is pretty empty on the data front, the most notable being the US PMIs on Thursday.