US Dollar vs Japanese Yen Technical Analysis

The U.S. Dollar continues to climb against the Japanese Yen as we head towards the FOMC meeting and the CPI numbers in America. At this point in time, the market is going to continue to be very noisy. And I do think that eventually we could break out to the upside. But right now, it looks like the 158 yen level is about as good as it gets. Obviously, after this session, we could see a complete change in attitude if the right combination of things happened. But right now, I think we’ve got a situation where any pullback has to be looked at as a potential buying opportunity.

This is especially true near the 155 yen level where the area had seen buyers previously and of course we have the 50-day EMA rapidly approaching. If we can break above the 158 yen level, then we could make a challenge for the 160 yen level which is where the Bank of Japan defended. Keep in mind that once we get through the FOMC meeting we do have a Bank of Japan meeting and press conference on Friday that could also throw more noise into this market.

Regardless, there is almost no scenario that makes sense to start shorting this pair. The Japanese are stuck with a massive debt load and will not be able to absorb anything close to a realistic interest rate to finance the spending of the last several decades. This pair is a one-way trade overall.

For a look at all of today’s economic events, check out our economic calendar.

This article was originally posted on FX Empire

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• EUR/USD reversed the recent downtrend and regained 1.0800.
• The US Dollar came under pressure after the US CPI surprised to the downside.
• The Federal Reserve kept its rates unchanged, as broadly expected.

The US Dollar (USD) continued its strong retracement on Wednesday, this time on the back of disheartening US inflation figures tracked by the CPI in May, lending fresh legs to EUR/USD beyond the key 1.0800 barrier, or three-day highs.

It was all about the US CPI and the FOMC event on Wednesday, as EUR/USD seems to have temporarily set aside fresh political concerns on the old continent, particularly those reignited following the European parliamentary elections over the weekend.

Meanwhile, ECB Vice President de Guindos argued on Wednesday that the bank should proceed “very slowly” with reducing interest rates due to considerable uncertainty surrounding the inflation outlook.

In what was the salient event of the day, the Federal Reserve maintained interest rates steady and suggested that rate cuts may not begin until December. They projected a single quarter-percentage-point reduction for the year, reflecting rising inflation estimates. The end-of-year inflation projection has been revised to 2.6%, up from the previous 2.4%. Discussions suggest that the neutral interest rate may be higher than previously estimated, placing it more than a quarter of a percentage point above its level at the end of 2023.

Furthermore, Chair Powell argued at his press conference that a single quarter-percentage-point rate cut would not significantly impact the US economy, emphasizing that the overall policy trajectory is more crucial.

The CME Group’s FedWatch Tool now indicates nearly a 95% probability of lower interest rates by the December 18 gathering.

In the short term, the ECB’s recent rate cut vs. the Fed’s on-hold stance has widened the policy gap between both central banks, potentially exposing EUR/USD to further weakness. However, in the longer term, the emerging economic recovery in the Eurozone, combined with perceived slowdowns in the US economy, should help mitigate this disparity, offering some support to the pair.

In the meantime, US inflation is expected to remain in the limelight ahead of the release of Producer Prices on June 13.

EUR/USD daily chart

EUR/USD short-term technical outlook

If the bearish tone continues, EUR/USD may first hit the June low of 1.0719 (June 11), followed by the May low of 1.0649 (May 1) and the 2024 low of 1.0601 (April 16).

If bulls reclaim the lead, there is an immediate up-barrier at the weekly high of 1.0852 (June 12) ahead of the June top of 1.0916 (June 4) and the March peak of 1.0981 (March 8). Further north, the weekly high of 1.0998 (January 11) appears before the important 1.1000 threshold.

So far, the 4-hour chart shows an important bounce. That said, initial hurdle comes at 1.0852 prior to 1.0916 and 1.0942. Southwards, there is immediate contention at 1.0719 ahead of 1.0649 and 1.0516. The relative strength index (RSI) retreated below 55.

• EUR/USD reversed the recent downtrend and regained 1.0800.
• The US Dollar came under pressure after the US CPI surprised to the downside.
• The Federal Reserve kept its rates unchanged, as broadly expected.

The US Dollar (USD) continued its strong retracement on Wednesday, this time on the back of disheartening US inflation figures tracked by the CPI in May, lending fresh legs to EUR/USD beyond the key 1.0800 barrier, or three-day highs.

It was all about the US CPI and the FOMC event on Wednesday, as EUR/USD seems to have temporarily set aside fresh political concerns on the old continent, particularly those reignited following the European parliamentary elections over the weekend.

Meanwhile, ECB Vice President de Guindos argued on Wednesday that the bank should proceed “very slowly” with reducing interest rates due to considerable uncertainty surrounding the inflation outlook.

In what was the salient event of the day, the Federal Reserve maintained interest rates steady and suggested that rate cuts may not begin until December. They projected a single quarter-percentage-point reduction for the year, reflecting rising inflation estimates. The end-of-year inflation projection has been revised to 2.6%, up from the previous 2.4%. Discussions suggest that the neutral interest rate may be higher than previously estimated, placing it more than a quarter of a percentage point above its level at the end of 2023.

Furthermore, Chair Powell argued at his press conference that a single quarter-percentage-point rate cut would not significantly impact the US economy, emphasizing that the overall policy trajectory is more crucial.

The CME Group’s FedWatch Tool now indicates nearly a 95% probability of lower interest rates by the December 18 gathering.

In the short term, the ECB’s recent rate cut vs. the Fed’s on-hold stance has widened the policy gap between both central banks, potentially exposing EUR/USD to further weakness. However, in the longer term, the emerging economic recovery in the Eurozone, combined with perceived slowdowns in the US economy, should help mitigate this disparity, offering some support to the pair.

In the meantime, US inflation is expected to remain in the limelight ahead of the release of Producer Prices on June 13.

EUR/USD daily chart

EUR/USD short-term technical outlook

If the bearish tone continues, EUR/USD may first hit the June low of 1.0719 (June 11), followed by the May low of 1.0649 (May 1) and the 2024 low of 1.0601 (April 16).

If bulls reclaim the lead, there is an immediate up-barrier at the weekly high of 1.0852 (June 12) ahead of the June top of 1.0916 (June 4) and the March peak of 1.0981 (March 8). Further north, the weekly high of 1.0998 (January 11) appears before the important 1.1000 threshold.

So far, the 4-hour chart shows an important bounce. That said, initial hurdle comes at 1.0852 prior to 1.0916 and 1.0942. Southwards, there is immediate contention at 1.0719 ahead of 1.0649 and 1.0516. The relative strength index (RSI) retreated below 55.

USD/JPY Forecast Video for 23.06.23

US Dollar vs Japanese Yen Technical Analysis

The market is steadily approaching the ¥142.50 level, a previous swing high, indicating efforts to gather enough momentum for a significant move. Notably, the recent breakout of a bullish flag pattern and an ascending triangle pattern further reinforce the optimistic sentiment, hinting at the potential for the USD/JPY pair to reach or exceed the ¥148 level.

Upon analyzing the chart, it becomes apparent that the ¥138 level poses significant resistance. This level, having served as a strong resistance in the past, carries substantial importance due to “market memory.” Intriguingly, it aligns with the bottom of the bullish flag pattern, further emphasizing its potential as a crucial support level. If the market were to break below this level, it would likely trigger considerable selling. Adding to its technical significance is the presence of the 50-Day EMA in the vicinity.

Considering the broader market context, there is a favorable setup for further upside potential, making buying dips an attractive strategy. The longer-term perspective also suggests the possibility of a significant move, particularly with the potential target of ¥148 based on the bullish flag pattern. Moreover, the Bank of Japan’s commitment to maintaining loose monetary policies aligns with this bullish outlook. Even if the Federal Reserve decides not to raise interest rates in the upcoming meeting, the substantial interest rate differential between the US dollar and the yen remains advantageous, serving as a strong driving force for this market.

In the end, the rally of the US dollar against the yen continues, with the market steadily approaching the ¥142.50 level. The breakout of the bullish flag pattern and the presence of an ascending triangle pattern further solidify the positive outlook. Notably, the ¥138 level holds significance as a resistance-turned-support level due to “market memory.” A substantial amount of selling could ensue if this level fails to provide support.

Looking at the bigger picture, the longer-term perspective indicates further upside potential, supporting a strategy of buying dips. The Bank of Japan’s commitment to ultra-loose monetary policies adds momentum to the trade. Regardless of the Federal Reserve’s upcoming interest rate decision, the substantial interest rate differential between the US dollar and the yen remains a significant driver in this market. Traders are advised to remain attentive to potential buying opportunities, especially on dips and the ongoing bullish momentum in the USD/JPY pair.

For a look at all of today’s economic events, check out our economic calendar.

This article was originally posted on FX Empire

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EUR/USD Current price: 1.0816

• The US Consumer Price Index rose by less than expected in May.
• Financial markets turned optimistic ahead of the Federal Reserve’s announcement.
• EUR/USD turned bullish in the near term, faces immediate resistance at around 1.0840.

The EUR/USD pair trades well above the 1.0800 threshold, filling the weekly opening gap and bullish following the release of United States (US) data. The Bureau of Labor Statistics (BLS) reported that the  Consumer Price Index (CPI) rose 3.3% YoY in May after hitting 3.4% in April. The CPI remained stable on a monthly basis, easing from the previous 0.3%. The core readings, which exclude volatile food and energy prices, were also below forecast and eased from the April readings.

Easing price pressures in the world’s largest economy prompted optimism on financial boards. Stocks turned firmly north, pushing high-yielding currencies higher, while the US Dollar entered a sell-off spiral.

The rally stalled as speculative interest faces another challenge in a few hours. The Federal Reserve (Fed) will announce its decision on monetary policy in a few hours. The Fed is widely expected to keep rates on hold, with the focus on whether policymakers maintain the hawkish stance from the previous meeting or not.

EUR/USD short-term technical outlook

From a technical point of view, the daily chart shows EUR/USD recovered above directionless 100 and 200 Simple Moving Averages (SMAs), while a bearish 20 SMA provides dynamic resistance at around 1.0840. At the same time, technical indicators picked up bullish strength but are currently struggling to overcome their midlines, which is not enough to anticipate another leg north.

According to the 4-hour chart, EUR/USD is bullish in the near term. Technical indicators aim north vertically, having surpassed their midlines. At the same time, the pair overcame the 20 and 200 SMAs but faces near-term resistance from a mildly bearish 100 SMA at around 1.0840. Overall, it seems investors will hold additional fire until after the Fed.

Support levels: 1.0790 1.0750 1.0710

Resistance levels: 1.0840 1.0885 1.0920

EUR/USD Current price: 1.0816

• The US Consumer Price Index rose by less than expected in May.
• Financial markets turned optimistic ahead of the Federal Reserve’s announcement.
• EUR/USD turned bullish in the near term, faces immediate resistance at around 1.0840.

The EUR/USD pair trades well above the 1.0800 threshold, filling the weekly opening gap and bullish following the release of United States (US) data. The Bureau of Labor Statistics (BLS) reported that the  Consumer Price Index (CPI) rose 3.3% YoY in May after hitting 3.4% in April. The CPI remained stable on a monthly basis, easing from the previous 0.3%. The core readings, which exclude volatile food and energy prices, were also below forecast and eased from the April readings.

Easing price pressures in the world’s largest economy prompted optimism on financial boards. Stocks turned firmly north, pushing high-yielding currencies higher, while the US Dollar entered a sell-off spiral.

The rally stalled as speculative interest faces another challenge in a few hours. The Federal Reserve (Fed) will announce its decision on monetary policy in a few hours. The Fed is widely expected to keep rates on hold, with the focus on whether policymakers maintain the hawkish stance from the previous meeting or not.

EUR/USD short-term technical outlook

From a technical point of view, the daily chart shows EUR/USD recovered above directionless 100 and 200 Simple Moving Averages (SMAs), while a bearish 20 SMA provides dynamic resistance at around 1.0840. At the same time, technical indicators picked up bullish strength but are currently struggling to overcome their midlines, which is not enough to anticipate another leg north.

According to the 4-hour chart, EUR/USD is bullish in the near term. Technical indicators aim north vertically, having surpassed their midlines. At the same time, the pair overcame the 20 and 200 SMAs but faces near-term resistance from a mildly bearish 100 SMA at around 1.0840. Overall, it seems investors will hold additional fire until after the Fed.

Support levels: 1.0790 1.0750 1.0710

Resistance levels: 1.0840 1.0885 1.0920

• The British pound initially rallied during the trading session on Tuesday to break above the crucial ¥200 level, but it has also given back some of those gains as it shows that we are going to have quite a bit of noise in this market.

That being said, I think this is a situation where market participants continue to push to the upside, and I look at dips as buying opportunities.

After all, the interest rate differential is wide enough to drive a truck through and I think ultimately this is a market that will try to break to a fresh new high, perhaps overcoming the ¥201 level.

• 

In the meantime, we may get a short term pullback, but I think that is something that you should take advantage of. The latest swing high, shows that the market is trying to do everything it can to get beyond the Bank of Japan intervention. But the latest swing low down at the ¥197.50 level is an area that previously had been resistant, so it’s already proven to have people willing to jump into it.

Remember, you get paid at the end of every day to hang on to this position, and that’s something that does matter to institutional traders and therefore the so-called big money. I believe that the 50 day EMA near the 196.25 level will continue to be supportive as well. So, I see so many support levels underneath that. I think it’s probably only a matter of time before value hunters jump in.

Keep in mind that Friday is a Bank of Japan meeting, but really, there’s only so much they can do because quite frankly, Japan has far too much debt to finance it at higher levels. Because of this, I remain bullish for the longer-term, and I do believe that it is only a matter of time before we break through the recent high and continue to go even higher. I have no interest in selling this pair, and I believe that ultimately the British pound will continue to pummel the Japanese yen, although the “easy money” has already been made.

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• GBP/USD edges slightly higher after posting small gains on Monday and Tuesday.
• The technical outlook highlights sellers’ hesitancy in the near term.
• May inflation data from the US and the Fed policy announcements could drive the pair’s action later.

GBP/USD edged higher and closed the second consecutive day in positive territory on Tuesday. Despite the US Dollar’s resilience, the pair managed to hold its ground as the sharp decline seen in EUR/GBP showed that Pound Sterling captured capital outflows out of the Euro. 

GBP/USD continues to stretch higher and trades at around 1.2750 as market attention shifts to key macroeconomic events from the US.

Annual inflation in the US, as measured by the change in the Consumer price Index (CPI), is forecast to hold steady at 3.4% in May. On a monthly basis, the CPI is expected to increase 0.1%, while the core CPI, which excludes volatile food and energy prices, is seen rising 0.3%.

Investors are likely to react to the monthly core CPI print because it’s not distorted by the base effect. If this data comes in below the market expectation, the initial reaction could trigger a US Dollar (USD) selloff and help GBP/USD push higher, at least until the Federal Reserve (Fed) announces monetary policy decisions later in the American session.

The Fed is widely anticipated to hold the policy rate steady at 5.25%-5.5% following the June policy meeting. Alongside the policy statement, the Fed will also release the revised Summary of Economic Projections (SEP), the so-called dot plot. Investors could react to the interest rate projections in the SEP. If the publication shows that policymakers expect a single rate cut this year, the US Treasury bond yields could surge higher and provide a boost to the USD. On the flip side, if the dot plot points to two 25 basis points rate cuts this year, investors could price in a September rate cut and hurt the USD. According to the CME FedWatch Tool, markets still see a nearly 50% probability of a no change in policy rate in September.

GBP/USD Technical Analysis

The Relative Strength Index (RSI) indicator on the 4-hour chart rose above 50, reflecting the sellers’ hesitancy. On the upside, 1.2800 (mid-point of the ascending channel, psychological level, static level) aligns as next resistance before 1.2880 (static level from March).

The lower limit of the ascending channel forms first support at 1.2730 before 1.2700 (psychological level, static level) and 1.2650 (200-period Simple Moving Average on the 4-hour chart).

 

• As the most important trading session of the week begins, the USD/JPY currency pair has settled around the 157.33 resistance level at the time of writing, hovering at its highest levels in over a week despite higher-than-expected Japanese domestic inflation figures.
• According to the economic calendar results, data showed that producer prices in Japan jumped 2.4% year-on-year in May 2024, accelerating from a revised 1.1% increase in April, and marking the highest reading since August of last year.
• Also, the latest figure beat market expectations of a 2% rise, raising concerns that it could translate into higher consumer inflation.

Meanwhile, investors are looking forward to the Bank of Japan’s policy decision on Friday, with a focus on whether the Japanese central bank will reduce its monthly bond purchases. Furthermore, Bank of Japan Governor Kazuo Ueda reiterated last week that the central bank will gradually shrink its massive balance sheet, although the timing remains uncertain.

• 

On the US dollar front, the Federal Reserve is expected to keep the target range for federal funds steady at 5.25%-5.50% for a seventh straight meeting in June 2024, amid firmer-than-expected inflation and a strong Labor market and economy. Attention will be focused on any signs of when policymakers plan to cut borrowing costs, although no firm commitment is expected.

The so-called dot plot is likely to show policymakers have trimmed their projected cuts this year to two or fewer, compared with three expected in December. Likewise, the US Fed is due to release new economic forecasts. In April, the annual personal consumption expenditures inflation rate held steady at 2.7%, with core inflation steady at 2.8%. The US economy grew by 1.3% year-on-year in the first quarter, the slowest growth since the contractions in the first half of 2022. However, non-farm payrolls exceeded expectations in four months of this year.

USD/JPY Technical analysis and Expectations Today

There is no change in our technical view of the performance of the USD/JPY price. Technically, the general trend is still bullish and may remain so as long as the divergence between the Bank of Japan’s policy and the US Federal Reserve’s, as well as economic performance, continues. Clearly, the bulls’ control over the performance of the USD/JPY will remain as it is until an expected Japanese intervention in the currency markets to stop the collapse of the yen exchange rate against the rest of the global currencies, especially against the US dollar. Currently, the closest resistance levels to the current general trend are 157.85 and 158.60 and the psychological resistance 160.00, respectively.

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• The euro has plunged as of late, especially as the ECB is cut rates, and of course we have had snap elections called in France.
• The Belgian prime minister resigned, and the political situation in Europe seems to be a bit of a mess at the moment, so that had people running away from the euro itself.
• However, it’s worth noting that there’s more than that going on in this currency pair EUR/CHF.

• 

The Swiss franc of course has been soft until the last week or 2, as the Swiss National Bank has cut rates and were the first to do so. At this point, the market still pays you to hang onto Swiss franc denominated currency pairs, at least with most currencies. The euro does pay swap at the end of the day and the fact that we are starting to form a bit of a hammer during the day does suggest that perhaps we could start to see the euro find its footing. It’s also worth noting that the previous candlestick was unchanged, although there were a couple of moves to the up and downside, and that suggests that perhaps we are starting to run out of selling pressure.

If we can turn around and break back above the 0.79 level, I believe this market could make a run toward the 0.99 level above, which was the swing high. Anything above there opens up the realistic possibility of parity, and it’s probably worth noting that level will attract a lot of attention. If we can break above there, then longer term “buy-and-hold traders” more likely than not will jump into this market. It’s probably worth also noting that we are hanging around near the 50% Fibonacci retracement level, which has certain technical traders out there paying close attention to it as well. In general, I expect to see a lot of back-and-forth, but it does seem as if we are more inclined to bounce from here than to break down.

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• The US dollar has rallied a bit against the Japanese yen, but you can see it is struggling a little bit to continue going higher.
• This makes a certain amount of sense because we do have the FOMC meeting on Wednesday.
• And that of course will attract a lot of attention and a lot of people will be concerned as to whether or not the Federal Reserve can stay tight or if they will start to open the door for interest rate cuts.

Quite frankly, it’s about the only thing that could save the yen at this point, due to the fact that the Bank of Japan certainly can’t do much. Speaking of the Bank of Japan, they do have a meeting on Friday, but I anticipate that being noise more than anything else. I don’t expect it to be anything that is worth paying close attention to from a longer term standpoint. Unless, of course, for some reason they raise rates underneath current levels. We have the ¥155 level offer and a massive support level that I think a lot of people will pay close attention to. Not only is it an area that is a large, round, psychologically significant figure, but it’s also an area where we’ve seen the 50 day EMA come into the picture as well to the upside.

• 

If we can break above the 158 level, then we could see the market go looking to the 160 level, which is where the Bank of Japan intervened previously. I do think eventually the market will take that back and blows through it. Ultimately, this is a buy on the dips market, and you do get paid at the end of every session to hold it.

So that’s something that you should always keep in the back of your mind. If we get a sudden lurch lower during the FOMC meeting, I have no issues whatsoever buying this market and taking advantage of cheap greenbacks. This is the momentum position of the longer-term market, and of course the interest payment at the end of everyday continues to be attractive.

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Economists forecast the US annual inflation rate to remain at 3.4% in May. Furthermore, economists expect the core inflation rate to fall from 3.6% to 3.5% in May. Higher-than-expected numbers may sink investor bets on multiple 2024 Fed rate cuts.

A higher-for-longer Fed rate path may raise borrowing costs and reduce disposable income. Lower disposable income could curb consumer spending and dampen demand-driven inflation.

We anticipate heightened dollar sensitivity to the inflation figures, with the Fed delivering its interest rate decision late in the session. Economists predict the Fed will stand pat on Wednesday. However, uncertainty about the Fed rate path will give the FOMC Economic Projections and Press Conference more weight.

The recent US Jobs Report and the inflation numbers could lead to more hawkish economic projections and a US dollar breakout. Fed Chair Powell will also move the dial after the release of the projections.

Short-term Forecast

Near-term trends for the USD/JPY will depend on US inflation numbers, the FOMC Economic Projections, and the Bank of Japan. Hotter-than-expected US inflation numbers and more hawkish Economic Projections could tilt monetary policy divergence toward the US dollar. However, Bank of Japan forward guidance on Friday also needs consideration.

USD/JPY Price Action

Daily Chart

The USD/JPY hovered above the 50-day and 200-day EMAs, confirming the bullish price trends.

A USD/JPY breakout from 157.5 could support a move toward the 159 handle. If the USD/JPY moves through the 159 level, the bulls could take a run at the April 29 high of 160.209.

US inflation numbers, the FOMC Economic Projections, and the FOMC Press Conference need consideration.

Conversely, a USD/JPY fall through the 156.5 handle could bring the 50-day EMA into play. A break below the 50-day EMA could signal a fall toward the 151.685 support level.

The 14-day RSI at 56.89 suggests a USD/JPY return to the April 29 high of 160.209 before entering overbought territory.