USD/JPY approaches 200-Day SMA while RSI flirts with overbought zone

USD/JPY Outlook

USD/JPY approaches the 200-Day SMA (137.28) as it trades to a fresh yearly high (137.10), and a move above 70 in the Relative Strength Index (RSI) may accompany a further advance in the exchange rate like the price action seen last year.

USD/JPY approaches 200-Day SMA while RSI flirts with overbought zone

A move above the moving average may push USD/JPY towards the December high (138.18) as the bullish momentum appears to be gathering pace, but key data prints coming out of the US may curb the recent advance in the exchange rate as the ISM Services Purchasing Manager Index (PMI) is anticipated to show a slowing economy.

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The update is expected to show the ISM index narrowing to 54.5 from 55.2 in January, and a dismal development may keep USD/JPY below the moving average as it puts pressure on the Federal Reserve to conclude its hiking-cycle.

In turn, the US Dollar may face headwinds ahead of the Federal Open Market Committee (FOMC) meeting later this month as the central bank appears to be on track to implement another 25bp rate hike, but another elevated reading in the Prices Paid component may prop up USD/JPY as the Fed continues to combat inflation.

With that said, the recent advance in USD/JPY may persist especially as the Bank of Japan (BoJ) sticks to the Quantitative and Qualitative Easing (QQE) program with Yield-Curve Control (YCC), and a move above 70 in the RSI may accompany a further advance in the exchange rate to largely mirror the price action from last year.

Japanese Yen Price Chart – USD/JPY Daily

Chart Prepared by David Song, Strategist; USD/JPY on TradingView

• The recent advance in USD/JPY as pushed the exchange rate up against the 200-Day SMA (137.28), with the Relative Strength Index (RSI) on the cusp of pushing into overbought territory for the first time since October 2022.
• A persistent reading above 70 in the RSI is likely to be accompanied by a further advance in USD/JPY like the price action from last year, with a move above the moving average raising the scope for a test of the December high (138.18) as the bullish momentum gathers pace.
• Next area of interest comes in around 138.70 (78.6% Fibonacci extension) to 140.00 (23.6% Fibonacci retracement), but failure to push above the moving average may keep the RSI out of overbought territory.
• Lack of momentum to hold above the 136.00 (23.6% Fibonacci extension) handle may push USD/JPY back towards the 132.60 (38.2% Fibonacci retracement) to 133.90 (23.6% Fibonacci retracement) region, with a move below the 50-Day SMA (132.03) exposing 130.20 (61.8% Fibonacci extension).

--- Written by David Song, Strategist

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