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USD/JPY bulls cling to gains and hold the spot around 125.80s

  • The USD/JPY extended its weekly gains, up some 1.29%.
  • Russo-Ukraine tussles, Fed speaking, and expectations of an aggressive Federal Reserve rate hike boosted the greenback.
  • USD/JPY Price Forecast: The uptrend is overextended, and negative divergence between price action/RSI suggests the pair is subject to a mean reversion move.

The USD/JPY barely advances during the day, as the Asian session is about to begin and extends its rally to two consecutive days, amidst a downbeat market mood, a firm US dollar, and higher US Treasury yields, which underpinned the USD/JPY. At the time of writing, the USD/JPY is trading at 125.89.

US equities finished the week with losses as traders prepared for a long weekend, while the 10-year benchmark note rose 12.5 basis points up to 2.827%, underpinning the greenback. The US Dollar Index, a gauge of the buck’s value against a basket of currencies, rose by 0.46%, sitting at 100.307.

Geopolitical jitters, rising global inflation, Fed speaking, and expectations of the Federal Reserve 50 bps rate hike at the May meeting, boosted the greenback on Thursday.

The Russo-Ukraine conflict worsens as the days advance, and a cease-fire seems unlikely. Albeit talks continued online, Ukraine’s Foreign Minister stated that there had not been any progress. On the Russian side, reports emerged that Ukraine’s struck a Russian warship in the Black Sea with missiles, while Russia’s Defense Minister added that the Moskva -its flagship fleet- had sunk, meaning escalation remains.

Aside from geopolitics, Fed speaking continued during the day, led by the New York Fed President John C. Williams. He said that a 50 bps increase in May is a “reasonable” option, but the pace of hikes will depend on the economy. Williams reiterated what Fed’s Governor Brainard said that the Fed needs to move “expeditiously” to more normal policy levels ad above neutral.

Meanwhile, as shown by Short-Term Interest Rates (STIRs), money market futures illustrate that the chances of a 50 bps rate hike to Federal Funds Rates (FFR) at the next FOMC meeting lie at 94% probability.

On Friday, the Japanese and US economic docket remains empty in the observation of Good Friday.

USD/JPY Price Forecast: Technical outlook

USD/JPY price portrays an inverted hammer followed by a regular hammer in an uptrend in the daily chart, meaning the uptrend is overextended. The Relative Strength Index (RSI) at 80.91 reached a lower high while the USD/JPY reached a new YTD high at 126.31, meaning a negative divergence is forming.

The USD/JPY first resistance would be 126.00. Once cleared, the following supply zone would be the YTD high at 126.31, followed by April 2015 cycle highs at 126.85.

If the pair corrects downwards, the USD/JPY’s first support would be the March 25 daily high at 125.10. A breach of the latter would expose 124.00, and then the April 5 daily high at 123.67.

USD/JPY

Overview
Today last price125.89
Today Daily Change0.34
Today Daily Change %0.27
Today daily open125.55
 
Trends
Daily SMA20122.56
Daily SMA50118.45
Daily SMA100116.39
Daily SMA200113.9
 
Levels
Previous Daily High126.32
Previous Daily Low125.35
Previous Weekly High124.68
Previous Weekly Low122.26
Previous Monthly High125.1
Previous Monthly Low114.65
Daily Fibonacci 38.2%125.95
Daily Fibonacci 61.8%125.72
Daily Pivot Point S1125.16
Daily Pivot Point S2124.77
Daily Pivot Point S3124.19
Daily Pivot Point R1126.13
Daily Pivot Point R2126.71
Daily Pivot Point R3127.1

Author

Christian Borjon Valencia

Markets analyst, news editor, and trading instructor with over 14 years of experience across FX, commodities, US equity indices, and global macro markets.

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