USD/JPY Technical Analysis - A Favorable Rate Hike Differential Highlights 139.586
The USD/JPY is supported by rising Fed rate hike expectations and a dovish outlook for Japanese Yen interest rates.
The dollar/yen rose on Friday, fueled by stronger-than-expected US inflation data and consumer spending. Meanwhile, in Japan, the incoming governor of the Bank of Japan made dovish remarks that weakened the Japanese Yen.
The USD/JPY pair closed at 136.495 on Friday, up 1.813 points or +1.35%. The Invesco CurrencyShares Japanese yen Trust ETF (FXY) finished the day at $68.30, down $0.89 or -1.29%.
In the US, Inflation is High and Spending is High
The Fed's preferred measure of inflation, the core personal consumption expenditures price index, rose 0.6% in January and 4.7% year on year, exceeding economists' expectations. In January, consumer spending increased by 1.8%. The reports raised concerns that the Fed may have to keep interest rates higher for longer to combat inflationary pressures.
Treasury yields soared as a result of the news, making the US dollar a more appealing asset than the Japanese yen, which is under pressure from ultra-low domestic interest rates.
Incoming BOJ Chief says low-interest rates are still appropriate - for the time being
While the market expects the Fed to keep raising interest rates until at least July, incoming BOJ Governor Kazuo Ueda said on Friday that the central bank must maintain ultra-low rates to support the country's fragile economy, warning of the dangers of responding to cost-driven inflation with monetary tightening.
Short-Term Outlook
The fundamentals are bearish, but the charts show that there is plenty of room for the upside as long as the Fed raises rates and the BOJ keeps rates ultra-low.
USD/JPY Technical Analysis Daily
According to the daily swing chart, the main trend is upward. A trade through 129.814 will reverse the main trend. A retracement zone at 133.992 to 132.700 is the nearest support. The most common range is 151.945 to 127.227. The primary upside target is the retracement zone from 139.586 to 142.503.
USD/JPY Technical Forecast for Today
The reaction of traders to 136.495 will most likely determine the direction of the USD/JPY early Monday.
Bullish Scenario
A sustained move above 136.495 suggests the presence of buyers. If this generates enough upward momentum, expect a surge into the main top at 138.173. Taking out this level will reaffirm the uptrend, propelling it to the retracement zone of 139.586 to 142.503.
Bearish Scenario
A sustained move below 136.495 indicates the presence of sellers. If this generates enough downside momentum, the selling may extend into the short-term Fibonacci level of 133.992, followed by the short-term 50% level of 132.700.