USD/JPY Ranges in Ascending Channel After Failing to Test May High

Close-up of market chart showing downtrend
By :  ,  Strategist

USD/JPY Outlook

USD/JPY appears to be stuck in a narrow range as it gives back the advance from earlier this week, and the exchange rate may consolidate ahead of the Federal Reserve interest rate decision on June 14 amid the failed attempt to test the May high (140.93).

USD/JPY Ranges in Ascending Channel After Failing to Test May High

Keep in mind, USD/JPY continues to trade within the confines of an ascending channel after triggering an overbought reading in the Relative Strength Index (RSI) for the first time this year, and the range-bound price action may end up being short-lived as the US Consumer Price Index (CPI) is anticipated to show sticky inflation.

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US Economic Calendar 06082023 Economic Calendar

Looking ahead, the update from the US Bureau of Labor Statistics is anticipated to show the core CPI rising to 5.6% in May from 5.5% per annum the month prior, and evidence of persistent price growth may push the Federal Reserve to further combat inflation as the Non-Farm Payrolls (NFP) report continues to reflect a strong labor market.

In turn, the Federal Open Market Committee (FOMC) may vote for another 25bp rate hike as inflation remains well above the central bank’s 2% target, and it remains to be seen if Chairman Jerome Powell and Co. will adjust the forward guidance as the central bank is slated to update the Summary of Economic Projections (SEP).

CME FedWatch Tool 06082023

Source: CME

However, the CME FedWatch Tool shows limited expectations for higher interest rates as market participants are currently pricing a 70% chance of seeing the FOMC move to the sidelines, and a pause in the Fed’s hiking-cycle may produce headwinds for the US Dollar as it fuels speculation for a looming change in regime.

With that said, USD/JPY may threaten the opening range for June if the Fed keeps US interest rates on hold, but the exchange rate may continue to track the upward trending channel from earlier this year as the Bank of Japan (BoJ) seems to be in no rush to switch gears.

Japanese Yen Price Chart – USD/JPY Daily

USDJPY Daily Chart 06082023

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

  • USD/JPY consolidates following the failed attempt to test the May high (140.93), and the exchange rate may track the monthly range as it bounces back from a fresh weekly low (138.81).
  • However, failure to defend the opening range for June may lead to a further decline in USD/JPY, with a move below the monthly low (138.44) bringing the 200-Day SMA (137.31) back on the radar.
  • A decline towards the long-term moving average may threaten the upward trending channel from earlier this year, with a move below channel support opening up the 136.00 (23.6% Fibonacci extension) handle.
  • Nevertheless, USD/JPY may continue to track the monthly range as it bounces along the 138.70 (78.6% Fibonacci extension) to 140.00 (23.6% Fibonacci retracement) region, with a break above the May high (140.93) opening up 141.50 (38.2% Fibonacci extension).

Additional Market Outlooks:

EUR/USD Outlook: June Opening Range Intact For Now

AUD/USD Susceptible to Failed Test of 50-Day SMA

--- Written by David Song, Strategist

Follow me on Twitter at @DavidJSong


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