Japanese Yen Outlook
USD/JPY pulls back after testing the 50-Day SMA (132.32) for the first time since November, but the exchange rate may stage further attempts to push above the moving average as it no longer exhibits the range bound price action carried over from last month.
USD/JPY no longer exhibits range bound price action
USD/JPY seems to be tracking the recent weakness in long-term US Treasury yields as it trades to a fresh weekly low (130.34), and the exchange rate may struggle to retain the advance from the yearly low (127.23) should it continue to track the negative slope in the moving average.
Looking ahead, the upcoming change at the Bank of Japan (BoJ) may influence USD/JPY as Governor Haruhiko Kuroda leaves the helm while the Quantitative and Qualitative Easing (QQE) with Yield Curve Control (YCC) remains active, and it remains to be seen if the new leadership will lead to a change in regime as major central banks pursue a restrictive policy.
Until then, speculation surrounding the Federal Reserve may sway USD/JPY as the central bank winds down its hiking-cycle, and the update to the U. of Michigan Consumer Sentiment Index may do little to influence the US monetary policy outlook as the gauge is projected to increase to 65.0 from 64.9 in January.
However, a material improvement in household confidence may prop up USD/JPY as it puts pressure on the Federal Open Market Committee (FOMC) to tolerate a higher trajectory for US interest rates, and the exchange rate may hold above the monthly low (128.08) ahead the update to the US Consumer Price Index (CPI) even as market participants anticipate a further slowdown in inflation.
With that said, the US Dollar may face headwinds ahead of the next Fed rate decision in March as Chairman Jerome Powell and Co. are expected to deliver another 25bp rate hike, but USD/JPY may stage further attempts to push above the 50-Day SMA (132.32) as it no longer exhibits the range bound price action carried over from last month.
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Japanese Yen Price Chart – USD/JPY Daily
Chart Prepared by David Song, Strategist; USD/JPY on TradingView
- USDJPY trades to a fresh weekly low (130.34) after testing the 50-Day SMA (132.32) for the first time since November, with a break/close below 130.20 (61.8% Fibonacci expansion) raising the scope for a move towards the monthly low (128.08).
- USD/JPY may continue to track the negative slope in the moving average if it fails to defend the opening range for February, with a move below the January low (127.23) opening up the 126.60 (50% Fibonacci retracement) region.
- However, USD/JPY may stage further attempts to push above the moving average if it continues to hold above 130.20 (61.8% Fibonacci expansion), with a break/close above the 132.60 (38.2% Fibonacci retracement) to 133.90 (23.6% Fibonacci retracement) opening up the January high (134.78).
--- Written by David Song, Strategist
