Japanese Yen Technical Forecast: USD/JPY Weekly / Daily Trade Levels

• USD/JPY post-FOMC breakout extends more than 6.1% off December low
• USD/JPY bulls testing major pivot zone at uptrend resistance- US Core PCE on tap tomorrow
• Resistance 157.16/89 (key), ~159.50s, 160.40/73- Support 151.90-152, ~151.16, 148.73-149.60 (key)

The Japanese Yen is poised to mark a third consecutive weekly decline against the US Dollar with USD/JPY surging to fresh multi-month highs on the back of the Fed rate decision. The rally takes price into a critical pivot zone and while the broader outlook remains constructive, we’re looking for possible inflection here in the days ahead. Battle lines drawn on the USD/JPY weekly technical chart into the close of the year.

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Japanese Yen Price Chart – USD/JPY Weekly

Chart Prepared by Michael Boutros, Sr. Technical Strategist; USD/JPY on TradingView

Technical Outlook: In last month’s Japanese Yen Technical Forecast we highlighted potential for a larger correction within the September uptrend in USD/JPY while noting that, “From a trading standpoint, look to reduce short-exposure / lower protective stops on a stretch towards 150 IF reached. Ultimately, we are looking for an exhaustion low ahead of 148 for the September rally to remain viable with a breach / close above 154.34 needed to mark uptrend resumption.” Price plunged nearly 5.2% off the November highs with USD/JPY registering an intraday low at 148.64 into the monthly open before rebounding.

The US Dollar is now poised to mark a third consecutive weekly advance with the recovery extending more than 6.1% off the December low on the heels of the FOMC rate decision. The rally takes USD/JPY towards a major resistance hurdle just higher at 157.17/89– a region defined by the 78.6% retracement of the yearly range and the July breakdown close. Note that the 2020 parallel converges on this zone over the next few weeks and further highlight the technical significance of this threshold.

Initial weekly support now rests back at the 1986 low / 1998 & 2022 high at 151.90-152 and is backed closely by the 52-week moving average (currently ~151.16). Broader bullish invalidation now raised to the 2022 high-close / 2023 high-week close (HWC) at 148.73-149.60– a break / close below this threshold would suggest a more significant high is in place / a larger reversal is underway. Ultimately, a break below the 61.8% retracement at 146.29 would be needed to put the bears in control.

A topside breach / close above this key pivot zone exposes subsequent resistance objectives at the upper parallel (blue slope near 159.50s) and the 1990 high / 2024 HWC at 160.40/73. Ultimately, a close above the swing highs at 161.95 would be needed to fuel the next major leg of the multi-year uptrend in USD/JPY (look for a larger reaction there IF reached).

Bottom line: The USD/JPY rally is now approaching major technical resistance, and the focus is on possible inflection into this threshold. From a trading standpoint, look to reduce portions of long-exposure / raise protective stops on a test of 157.16/89- losses should be limited to 152 IF price is heading higher on this stretch with a close above this pivot zone needed to mark resumption of the September uptrend.

Keep in mind we get the release of key US inflation data tomorrow with the Consumer Price Expenditure (PCE) expected to show a slight uptick to 2.9% y/y in November. Stay nimble into the release watch the weekly close here for guidance. Review my latest Japanese Yen Short-term Outlook for a closer look at the near-term USD/JPY technical trade levels.

USD/JPY Key Economic Data Releases

Economic Calendar – latest economic developments and upcoming event risk.

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— Written by Michael Boutros, Sr Technical Strategist

Follow Michael on X @MBForex

• The greenback jumped after the Fed forecasted fewer rate cuts in 2025.

• Forecasts revealed that the Fed might only lower rates by 50 bps.

• Inflation jumped from 2.3% to 2.6% in the three months to October.

The GBP/USD forecast shows renewed support for the USD despite FOMC’s rate cut. The Fed left a hawkish statement regarding rate cuts in 2025. As a result, the pound collapsed despite lower expectations for Bank of England rate cuts. Market participants are now looking forward to US inflation data for more clues on the future of US monetary policy.

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The greenback jumped in the previous session after the Fed forecasted fewer rate cuts in 2025. The central bank lowered borrowing costs by 25 bps on Wednesday. However, forecasts revealed that the Fed might only lower rates by 50 bps. This was a significant drop from September when the central bank forecasted 100 bps in rate cuts. 

The shift in policy outlook came due to recent resilience in the US economy. Economic figures have shown inflation has paused its progress to the 2% target. At the same time, the labor market and consumer spending have remained robust despite high interest rates. Moreover, policymakers expect this to continue with the Trump administration.

On the other hand, traders are pricing in fewer rate cuts in the UK due to a robust labor market and high inflation. Wage data this week showed a surge in pay growth, which might keep the UK Central Bank cautious. At the same time, inflation jumped from 2.3% to 2.6% in the three months to October. Market participants expect the central bank to keep rates unchanged later in the day.

GBP/USD key events today

• Monetary Policy Summary
• MPC Official Bank Rate Votes
• Official Bank Rate

GBP/USD technical forecast: Lower low confirms downtrend

On the technical side, the GBP/USD price has collapsed and broken below the 0.618 Fib to make a lower low. As a result, the price has fallen well below the 30-SMA, showing bears are in the lead. At the same time, the RSI trades nearer the oversold region, suggesting solid bearish momentum. 

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Initially, bulls had attempted to break above the 30-SMA but could not go beyond the 1.2725 resistance level. Soon after, there was a surge in bearish momentum as the price made an engulfing candle that broke below the 0.618 Fib level. After the impulsive move, the price has paused to retest the Fib level as resistance. If it holds, the decline will continue with the new target at 1.2500 support.

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• The Fed predicted fewer rate cuts in the coming year.

• Fed policymakers have assumed a less dovish stance due to the resilient US economy.

• The Bank of Japan gave little clues on future moves.

The USD/JPY outlook took a sharp bullish turn on Wednesday as the Fed forecasted fewer cuts in 2025, and the BoJ remained mum on the outlook for rate hikes. As a result, the dollar soared while the yen collapsed. 

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The Federal Reserve met on Wednesday and cut interest rates by 25 bps. However, it was a hawkish cut because policymakers predicted fewer rate cuts in the coming year. According to forecasts, the central bank might only cut by 50 bps in 2025. This was a 50-bps drop from September’s forecast. As a result, markets slashed bets for rate cuts, boosting the dollar. 

Although traders had expected a change in the outlook for monetary easing, the Fed’s cautious forecast came as a surprise. Policymakers have assumed a less dovish stance due to the resilient US economy. Moreover, Trump’s administration might come with more economic growth and a spike in inflation, which would require a more restrictive policy. 

On the other hand, the Bank of Japan kept rates unchanged on Thursday and gave little clues on future moves. Market participants had expected some hints about a rate hike. However, Governor Ueda said the central bank needed time to assess incoming data. At the same time, the uncertainty about Trump’s policies has clouded the outlook. The meeting was a disappointment, leading to a collapse in the yen.

USD/JPY key events today

• Final GDP q/q
• Unemployment Claims

USD/JPY technical outlook: Bullish spike continues uptrend

On the technical side, the USD/JPY price has made an impulsive bullish move that has broken past major resistance levels. The move started after a retest of the 30-SMA as support. Bulls have been in the lead since the price broke above the 30-SMA. Therefore, when it pulled back, bulls were ready to make a new high. As a result, the price broke above the 154.00 and the 156.00 key resistance levels. At the same time, the RSI entered the overbought region, indicating a surge in bullish momentum. 

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Bulls are eyeing the 158.01 resistance and might soon reach it. However, after such a sharp move, bulls might get exhausted at the next resistance, leading to a pullback to retest recently broken key levels.

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Created on December 19, 2024

• We have often mentioned that this trading week would be important and exciting. As expected, the US dollar has risen strongly against other major currencies after the Federal Reserve cut US interest rates by 25 basis points.
• Moreover, it indicated the end of a series of successive cuts.
• As a result, the price of the pound sterling against the US dollar GBP/USD fell to the support level of 1.2562, the lowest level for the currency pair in 3 weeks, before settling around the level of 1.2606 at the time of writing the analysis and ahead of the important Bank of England announcement later today.

The US Federal Reserve backs away from future rate cuts

The pound-dollar losses deepened after the Federal Reserve “outperformed the hawks” and backed away from its expected US interest rate cuts for 2025. According to the US central bank’s policy statement, one member of the Federal Open Market Committee (FOMC) – Beth Hammack – voted to leave US interest rates unchanged. New forecasts from the FOMC showed that officials believe fewer rate cuts are likely in 2025 and 2026.

They now expect only 50 basis points worth of cuts, meaning two cuts, while the September projections showed that cuts would be possible in 2025. As a result, the Federal Reserve is now expected to cut US interest rates two more times in 2026 and only once in 2027, raising the final interest rate to 3.1%. In general, the higher base rate for the Federal Funds rate would support US Treasury yields, which affect commercial interest rates, thereby increasing the attractiveness of US debt-based assets. This would attract foreign capital inflows, boosting the value of the US dollar.

Trading Tips:

The sterling dollar price will remain bearish amid cautious anticipation until the Bank of England announces later today. Decisively, be careful until the reaction to the bank’s announcements to determine the closing path for this week.

US Stocks Tumble After Interest Rate Hints

According to stock trading platforms, US stock indices experienced strong selling, with losses exceeding 3%, and US 10-year Treasury yields rose to their highest levels in seven months. Following the reaction to the Fed’s announcement and the statements of its chairman, Jerome Powell, the bank cut interest rates as expected, but dashed hopes for more rate cuts in 2025. As a result, the selling of US stocks was the worst after a meeting since the beginning of the pandemic, and the message was clear: the sustained rise and risk in the past two years are suddenly in danger.

Historically, the last time the S&P 500 index experienced such losses on the day of the Fed’s decision was on September 17, 2001, when the index fell by about 5%. It fell by 12% on March 16, 2020, a day after the central bank’s emergency meeting over the weekend during the pandemic.

Technical Analysis for the GBP/USD pair today:

The overall trend of the GBP/USD pair remains bearish, and if the pound does not receive a strong boost from today’s Bank of England announcement. Technically, the bears may find a stronger opportunity for a stronger downward move, and the support level of 1.2487, which the currency pair recorded at the end of last month’s trading, may be an easy target, as it is the lowest level for the currency pair since May 2024. Conversely, and on the same time frame, the initial downward trend will not be broken without the currency pair moving above the resistance of 1.0800 again. Finally, we still expect to sell the GBP/USD from every upward level. In addition to the Bank of England’s announcement, the GBP/USD will be affected today by the announcement of the US GDP growth reading and the number of weekly jobless claims. This, in addition to the extent of investors’ risk appetite.

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Created on December 19, 2024

• Following the reaction to yesterday’s US Federal Reserve announcement and today’s Bank of Japan announcement, bulls have found strong opportunities to push the USD/JPY currency pair towards the resistance level of 156.68 at the time of writing this analysis.
• Near its highest in five months, pressures increased on the Japanese yen after the Bank of Japan kept interest rates steady as expected.

US Federal Reserve Cautiously Cuts Interest Rates

 The US Federal Reserve announced another 25-basis point cut in the US interest rate in December 2024, marking the third consecutive cut this year and reducing borrowing costs to a range of 4.25%-4.5%, in line with expectations. The so-called dot plot indicates that policymakers now expect only two interest rate cuts in 2025, totalling 50 basis points, compared to the full percentage point of cuts expected in the previous quarter.

The Federal Reserve also revised its GDP growth forecasts upward for 2024 (2.5% vs. 2% in September forecasts) and 2025 (2.1% vs. 2%), while remaining unchanged at 2% for 2026. Similarly, forecasts for personal consumption expenditure inflation were revised upward for 2024 (2.4% vs. 2.3%), 2025 (2.5% vs. 2.1%), and 2026 (2.1% vs. 2%). The same trend applies to core personal consumption expenditures, with forecasts raised for 2024 (2.8% vs. 2.6%), 2025 (2.5% vs. 2.2%), and 2026 (2.2% vs. 2%). On the other hand, the unemployment rate is expected to decline this year (4.2% vs. 4.4%) and in 2025 (4.3% vs. 4.4%) while the forecast for 2026 remained at 4.3%.

Bank of Japan Keeps Rates as Expected

In contrast to the US Federal Reserve’s decision and expectations of a hike, the Bank of Japan today kept interest rates at around 0.25%, and it was clear to the markets that the Bank of Japan was hesitant to raise interest rates in December due to the possibility of negative outcomes. As Prime Minister Shigeru Ishiba’s minority government is currently negotiating with an opposition party that has warned against raising interest rates too early to ensure support for the next annual budget.

The Governor of the Bank of Japan is looking for the right time to raise interest rates for the third time, as recent economic indicators have shown that Japanese inflation is moving in line with the Bank of Japan’s forecasts – a prerequisite for raising interest rates.

Trading Tips:

After the completion of the last central bank decisions for this year, the dollar and the Japanese yen are expected to move to stronger upward levels, and the peak of 160.00 is not ruled out soon.

USD/JPY Technical Analysis and Expectations Today:

As is clear from the performance on the daily chart above, the USD/JPY will remain bullish, and the chance of a stronger weekly bullish close is currently high. The recent gains are pushing the Relative Strength Index towards the overbought zone, but the MACD indicator still has room to move higher before reaching its peak. The strongest expectations now are for the dollar/yen to move towards the psychological resistance of 160.00, around which Japanese intervention in the forex markets is often discussed to stop the yen’s collapse.

Moreover, this time there is Trump who is fighting countries that intervene to weaken their currency. In general, the dollar/yen will remain on its upward trajectory until the reaction to the announcement of the US GDP growth reading and the number of weekly jobless claims. Finally, the recent performance confirms the strength of our signals to buy the dollar against the yen from every downward level.

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