USD/JPY Technical Analysis: Bulls Remain in Control

  • For the third week in a row, the price of the USD/JPY currency pair stabilizes around its highest level in ten months with gains around the resistance level of 147.88 at the time of writing the analysis.
  • The trend may remain as such until the reaction to the policy update of the US central bank and any surprise from the Japanese central bank towards tightening.
  • Since Fed officials last met in July, the US economy has moved in the direction they had hoped to see: where inflation continues to decline, albeit more slowly than most Americans would like, while growth remains strong and the labor market cools.

When they meet again this week, policymakers will likely decide they can wait to see if progress continues. As a result, it is almost certain that they will leave the key interest rate unchanged when their meeting ends tomorrow, Wednesday.

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The slowdown in US inflation indicates that the Federal Reserve Bank is heading towards the peak of the series of interest rate increases it launched in March of last year – the fastest pace of its kind in four decades, a pace that has made borrowing much more expensive for consumers and businesses.

The focus of Wall Street investors and analysts is now turning to what comes next. Where some clues can come in the updated interest rate expectations issued every quarter and in a press conference with President Jerome Powell. Raising interest rates again this year is likely to remain on the table, and Fed officials may expect fewer key interest rate cuts next year than they did in June. This would confirm the Federal Reserve Bank’s determination to keep US interest rates high next year as it strives to reduce inflation to its 2% target.

At the same time, inflationary pressures showed signs of continuing in two government reports last week, which added some uncertainty to the forecasts. In this regard, Claudia Siham, the former economist at the Federal Reserve Bank, said that she believes that the “soft landing”, in which the Federal Reserve Bank is able to curb inflation without causing a recession, is still possible. But she warned that inflation may remain higher for longer than the central bank expects. Or I suggested that the cumulative effects of raising interest rates by the US Federal Reserve Bank 11 times could eventually push the US economy into recession.

According to the performance on the daily chart below, the general direction of the USD/JPY currency pair is still upward. It remain so until Japanese intervention in the markets to prevent further collapse of the price of the Japanese yen against the other major currencies led by the dollar. Depending on the trend, the resistance levels 148.20 and 149.00 may be the next targets. Remember that the currency pair jumped last October to the resistance level of 151.94 until a Japanese intervention in the markets took place and was swept away to the support level of 127.21 after that.

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