USD/JPY Outlook: Move beyond 200-day SMA will set the stage for additional near-term gains


  • USD/JPY climbs to its highest level since March 10 and draws support from a combination of factors.
  • The BoJ’s dovish outlook weighs heavily on the JPY and acts as a tailwind amid a modest USD strength.
  • Investors now look to the US ISM Manufacturing PMI for some impetus ahead of the FOMC meeting.

The USD/JPY pair builds on Friday's dovish Bank of Japan (BoJ)-inspired blowout rally and gains strong follow-through traction on the first day of a new week. The momentum lifts spot prices to the highest level since March 10 during the Asian session, with bulls now awaiting a sustained strength beyond a technically significant 200-day Simple Moving Average (SMA) before placing fresh bets. It is worth recalling that the Japanese central bank on Friday left its ultra-loose monetary policy settings unchanged and also made no tweaks to its yield curve control (YCC) by a unanimous vote. Adding to this, the new BoJ Governor Kazuo Ueda said that the risk from tightening too hastily is larger than monetary policy falling behind the curve and added that it will be appropriate to continue monetary easing to achieve the 2% inflation target. Apart from this, data released earlier this Monday showed that factory activity in Japan - the world's third-biggest economy - contracted for the sixth straight month in April. This, in turn, continues to weigh heavily on the JPY, which, along with a modest US Dollar (USD) strength, acts as a tailwind for the major.

The prospects of the Federal Reserve (Fed) raising interest rates by another 25 basis points (bps) at the end of a two-day meeting on Wednesday allows the Greenback to gain some positive traction for the third successive day. The markets, however, seem convinced that the US central bank will then hold rates steady for the rest of the year. This might hold back the USD bulls from placing aggressive bets ahead of the highly-anticipated FOMC policy meeting, starting on Tuesday. Furthermore, worries about economic headwinds stemming from rising borrowing costs could lend some support to the safe-haven JPY and contribute to keeping a lid on the USD/JPY pair, at least for the time being. In fact, the Advance US GDP report released last week showed that growth in the world's largest economy slowed more than expected in the first quarter. Moreover, the official Chinese Manufacturing PMI declined to 49.2 in April from 51.9 in March, pointing to a contraction in activity on a monthly basis and fueling recession fears. This tempers investors' appetite for riskier assets, which could drive some haven flows to the JPY and cap the major.

Market participants now look forward to the release of the US ISM Manufacturing PMI, due later during the early North American session, for some impetus. Apart from this, the US bond yields and the broader risk sentiment might contribute to producing short-term opportunities around the USD/JPY pair. The focus, meanwhile, will remain glued to the outcome of the FOMC meeting on Wednesday and the closely-watched US monthly employment details, popularly known as the NFP report on Friday. This will play a key role in influencing the near-term USD price dynamics and help determine the next leg of a directional move for the major.

Technical Outlook

From a technical perspective, some follow-through buying beyond the 200-day SMA will set the stage for a move towards the YTD peak, around the 137.90 region touched in March. A subsequent strength beyond the 138.00 mark will be seen as a fresh trigger for bulls and pave the way for a further near-term appreciating move. That said, the Relative Strength Index (RSI) on the daily chart is on the verge of breaking into the overbought territory and makes it prudent to wait for some near-term consolidation or a modest pullback before positioning for a fresh leg up.

On the flip side, any meaningful pullback now seems to find decent support near the 136.00 round figure. Any subsequent decline is more likely to attract fresh buyers and remain limited near the 135.00 psychological mark. The latter should now act as a strong base for the USD/JPY pair, which if broken decisively might shift the near-term base in favour of bearish traders and prompt aggressive technical selling. 

fxsoriginal

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.

If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.

FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.

The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.

Recommended Content


Recommended Content

Editors’ Picks

EUR/USD struggles to recover above 1.0900 as markets remain cautious

EUR/USD struggles to recover above 1.0900 as markets remain cautious

EUR/USD stays on the back foot and trades below 1.0900 following Thursday's sharp decline. Dovish comments from European Central Bank officials and the risk-averse market atmosphere make it difficult for the pair to stage a rebound on Friday.

EUR/USD News

GBP/USD falls toward 1.2900, looks to post weekly losses

GBP/USD falls toward 1.2900, looks to post weekly losses

GBP/USD continues to push lower toward 1.2900 in the American session on Friday. Disappointing Retail Sales data from the UK, combined with the US Dollar (USD) recovery amid souring mood, causes the pair to stay under bearish pressure ahead of the weekend.

GBP/USD News

Gold extends daily slide, trades near $2,400

Gold extends daily slide, trades near $2,400

Gold's correction from the record-high set earlier in the week deepens on Friday. With the US Dollar (USD) benefiting from safe-haven flows and the 10-year US yield holding steady above 4.2%, XAU/USD tests $2,400 and looks to post small weekly losses

Gold News

Top 10 crypto market movers as Bitcoin and Ethereum hold steady ahead of $1.8 billion options expiry

Top 10 crypto market movers as Bitcoin and Ethereum hold steady ahead of $1.8 billion options expiry

Bitcoin and Ethereum hold steady above $64,000 and $3,400 as $1.8 billion in options expire on Friday. WazirX hack of $230 million potentially linked to Lazarus Group ushers correction in Shiba Inu, among other assets. 

Read more

Week ahead – Flash PMIs, US GDP and BoC decision on tap

Week ahead – Flash PMIs, US GDP and BoC decision on tap

US data awaited amid overly dovish Fed rate cut bets. July PMIs to reveal how economies entered H2. BoC decides on monetary policy, may cut rates again.

Read more

Majors

Cryptocurrencies

Signatures