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The Future Performance of the USD/JPY: Has the Dollar's Strength Ended?

Today's market analysis on behalf of Rania Gule Market Analyst at


July 10, 2024 ( Newswire) The USD/JPY pair will likely rise slightly; however, any advance is unlikely to exceed the 161.80 level. In my view, the strength of the US dollar has started to weaken in the long and medium term. Currently, the pair is likely to trade in the range between 159.30 and 162.90 in the medium and long term.

Today, Wednesday, the USD/JPY pair rose for the third consecutive day and is trading above the 161.00 level, with Federal Reserve Chairman Jerome Powell remaining cautious about lowering interest rates despite acknowledging that the risks of keeping rates high for a longer period have become apparent. The pair is trading at 161.46, achieving gains of 0.28%.

In recent hours, the Japanese yen recorded slight losses against the US dollar following news about possible economic measures by the Bank of Japan at its July meeting. Government sources indicated that the Bank of Japan is likely to lower its economic growth forecasts for this year and expects inflation to remain around its 2% target in the coming years at this month's meeting.

Therefore, I believe the USD/JPY pair may reduce its rise, driven by the strength of the US dollar, following the testimony of Federal Reserve Chairman Jerome Powell before the US Senate. He indicated an improvement in inflation figures but maintained the Federal Reserve's cautious approach.

Additionally, the Bank of Japan may raise interest rates during its July meeting and reveal its plans to reduce bond purchases. Japanese Finance Minister Shunichi Suzuki emphasized yesterday, Tuesday, the importance of maintaining fiscal discipline to enhance long-term confidence in financial health. He also mentioned closely monitoring the discussions at the Bank of Japan's meeting regarding the bond market.

Today will be the second semi-annual testimony of Federal Reserve Chairman Jerome Powell and speeches by Federal Reserve officials Michelle Bowman and Austin Goolsbee. Tomorrow, Thursday, the US Consumer Price Index data will be released, which I believe will be very important and significantly impact price movements, especially if they come as a surprise against expectations.

On the economic data front, Japan's Producer Price Index rose by 2.9% in June, accelerating from a 2.6% increase in line with market expectations. This marks the forty-first consecutive month of rising producer price inflation and represents the highest level since August 2023. Meanwhile, Powell stated in his testimony before Congress yesterday that more positive data would strengthen the Federal Reserve's confidence in the inflation path. He confirmed that lowering interest rates is not appropriate now until the Fed is more confident that inflation is sustainably heading towards 2%.

The Bank of Japan will also hold three in-person meetings with banks, securities companies, and financial institutions over the next few days. The purpose of these meetings is to assess a reasonable pace for reducing its purchases of Japanese government bonds.

Accordingly, I believe the Japanese yen is under pressure due to foreign asset purchases by Japanese individuals through the new tax-exempt investment program, the Japanese Individual Savings Account Program. The volume of these purchases is expected to exceed the country's trade deficit during the first half of this year.

On Monday, Japan's Ministry of Finance said that Japanese investment fund management companies and asset management companies bought 6.16 trillion yen, equivalent to 38 billion dollars more than they sold off foreign stocks and investment fund shares during the first six months of this year.

Therefore, the pair may enter a consolidation phase in the near term and will be exposed to sharp fluctuations with the release of any US inflation data in the coming days due to the sensitivity of the dollar index to it. However, any movement based on data, in my opinion, will not be sustainable or long-term, but it may affect the pair's movements only in the near term.

Technical Analysis of Yen (USD/JPY) Prices:

The USD/JPY pair is trading around the 161.50 level today, Wednesday. The pair maintains its upward trajectory within a rising channel pattern, indicating a bullish inclination according to daily chart analysis. Additionally, the 14-day Relative Strength Index (RSI) remains above the 50 level, reinforcing the strength of the bullish trend.

In my view, the pair may target a significant resistance level near 162.70, which is located at the upper boundary of the rising channel. A successful break above this level could enhance the upward momentum, potentially pushing the pair toward the main resistance at 163.00.

In a bearish scenario, the USD/JPY pair could find support around the 21-day Exponential Moving Average (EMA) at 159.96. A break below this level could lead to further downward pressure, driving the price to test the lower boundary of the rising channel around 159.60. A further decline below this channel support could push the pair toward the area of the lowest level recorded in June at 154.55.

Technically, the pair continues its strong upward trend, with the price poised to surpass the highest level recorded since the beginning of the year at 161.95. The bullish RSI indicates upward momentum, but the price being in the overbought zone suggests a potential for a downward correction in the medium term. The price fluctuation in a series of consecutive highs and lows provides a strong justification for further gains.

A Doji candlestick pattern appeared on Monday, and the price action today confirmed the "Morning Star" pattern on the chart, indicating the potential for higher prices shortly.

If the USD/JPY pair manages to surpass the significant resistance level at 161.50, the next resistance will be the highest level since the beginning of the year at 161.90. Breaking this level could lead to additional gains towards the highest level recorded in November 1986 at 164.87.

However, if the Bank of Japan intervenes and drives the price below the low recorded on July 8 at 160.26, the price will retest the support level at 160.00 before any further decline.

Support levels: 161.10 - 160.80 - 160.50

Resistance levels: 161.60 - 161.75 - 162.50

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