US Dollar Forecast: USD/JPY Weakness Pushes RSI Towards Oversold Zone

US Dollar Outlook: USD/JPY

USD/JPY falls to a fresh monthly low (147.15) as the US Non-Farm Payrolls (NFP) shows a 151K rise in February versus forecasts for a 160K print, and the exchange rate may continue to give back the advance from the October low (142.97) as it carves a series of lower highs and lows.

US Dollar Forecast: USD/JPY Weakness Pushes RSI Towards Oversold Zone

USD/JPY extends the decline from the start of the week to push the Relative Strength Index (RSI) closer to oversold territory, and a move below 30 in the oscillator is likely to be accompanied by a further decline in the exchange rate like the price action from last year.

In turn, USD/JPY may continue to depreciate ahead of the Federal Reserve interest rate decision on March 19 as the weaker-than-expected NFP report warns of a slowing economy, and the central bank may come under pressure to further unwind its restrictive policy as the ongoing shift in US trade policy clouds the outlook for global growth.

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As a result, speculation for a looming Fed rate-cut may lead to a further shift in the carry trade as the central bank pursues a neutral policy, but the Federal Open Market Committee (FOMC) may keep US interest rates on hold throughout the first-half of 2025 as Chairman Jerome Powell insists that ‘we do not need to be in a hurry to adjust our policy stance.’

With that said, USD/JPY may continue to hold within last year’s range as the Fed pauses its rate-cutting cycle, but the exchange rate may continue to give back the advance from the October low (142.97) should the bearish price series persist.

USD/JPY Price Chart – Daily

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

USD/JPY falls for the third consecutive day after closing below the 148.70 (38.2% Fibonacci retracement) to 150.30 (61.8% Fibonacci extension) zone for the first time since October, with a break/close below the 144.60 (50% Fibonacci retracement) to 145.90 (50% Fibonacci extension) region raising the scope for a move towards the October low (142.97).
Next area of interest comes in around 140.50 (61.8% Fibonacci retracement) to 141.50 (38.2% Fibonacci extension), but the Relative Strength Index (RSI) may show the bearish momentum abating if it continues to hold above oversold territory.
Lack of momentum to a break/close below the 144.60 (50% Fibonacci retracement) to 145.90 (50% Fibonacci extension) may curb the recent decline in USD/JPY, with a move back above the 148.70 (38.2% Fibonacci retracement) to 150.30 (61.8% Fibonacci extension) zone bringing the monthly high (151.31) on the radar.

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--- Written by David Song, Senior Strategist

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