USD/JPY breaks short-term falling channel, eyes further gains

In today’s currency markets, the USD/JPY pair caught traders' attention by breaking out of its short-term descending channel, suggesting a potential change in the near-term trend. After overcoming the resistance level at 145.228, the pair has set its sights on an upward path, with immediate resistance seen at 145.521—a level corresponding with previous pricing peaks. A sustained move above this could give bulls the room to push toward the 145.704 to 145.821 range.

This technical breakout is underpinned by momentum indicators. The RSI has advanced into bullish territory above the neutral 50 threshold, indicating that buying pressure is mounting. Further reinforcing this viewpoint, the MACD has crossed above its zero line, hinting at an uptick in bullish momentum.

On the fundamental side, European market speculations on interest rate cuts from March have intensified following a sharper-than-anticipated decline in December's producer inflation. These speculations have lifted the odds of a rate cut, as reflected in the CME Fed Watch tool, which has jumped from 68% in the last week to 78%. Despite this, the USD/JPY pair has remained subdued below the 145.15 mark, as the market consensus leans towards the Bank of Japan maintaining its expansive monetary policy in the upcoming policy meeting. This backdrop has led to a focused interest in the USD/JPY exchange rate.

Alternative scenario

Should the sellers regain their footing, the focus will shift to the recent price floor around 145.228. A break below this pivotal level could invalidate the bullish perspective in the short term, potentially leading to a test of the channel’s lower bounds.

Market watch

Today’s economic docket is relatively light, but the release of European industrial production and trade balance data later in the day could have ripple effects on the US Dollar Index and by extension, the USD/JPY pair. Market participants should brace for potential swings should the data significantly deviate from expectations.

Technical levels to watch

- Resistance 3: 145.821.

- Resistance 2: 145.704.

- Resistance 1: 145.521.

- Current Price: 145.413.

- Support 1: 145.228.

- Support 2: 144.928.

While the technical breakout indicates bullish impulses, it is essential for market participants to consider the potential impact of upcoming economic indicators, which may alter the sentiment and volatility in the forex markets. The capacity of the USD/JPY to maintain its hold above key support levels will likely dictate the continuation of the current bullish narrative.