The Fed decided to maintain the interest rates at 5.00-5.25% last week, citing the need for additional economic data before considering additional hikes. They are trying to strike a balance of monetary restraint that can effectively combat inflation and prevent a severe recession.
In his testimony to Congress yesterday, Fed Chair Powell reaffirmed their commitment to lowering inflation to the desired target. However, he acknowledged that there is still a long way to go to reach their goal and added that if the economy performs as expected, the two additional rate hikes outlined in the Dot Plot could be viewed as a "pretty good guess”.
Overall, central banks are now data-dependent as they are trying to fine tune their terminal rates, so going forward the data is what really matters and not what the central bank speakers say.
USDJPY Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDJPY has reached a key resistance level at 142.17 where we can also find the 61.8% Fibonacci retracement level of the entire fall since October 2022. A strong break above this resistance supported by a fundamental catalyst would open the door for a rally into the 150.00 handle. We can also notice that this last leg higher is diverging with the MACD which is generally a sign of weakening momentum often followed by pullbacks or reversals. Seeing it here makes it more compelling that we might get a big pullback soon.
USDJPY Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that the red 21 moving average has been acting as dynamic support for the buyers but we are now starting to see the convergence of the moving averages as the price action becomes more rangebound. If we see them cross to the downside with a break below the 141.25 level, it would further confirm a retracement back to the 138.00 support where there’s also the 50% Fibonacci retracement level and a trendline for confluence.
USDJPY Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that the price has recently bounced on a previous resistance turned support, but couldn’t find enough strength to break above the 142.17 resistance. This little range gives us a clear setup:
- If the price breaks above the 142.17 resistance supported by a fundamental catalyst, we can expect a rally towards the 150.00 handle.
- If the price breaks below the 141.25 support, we can expect a pullback all the way back to the 138.00 handle.
Today we will see the US Jobless Claims report and tomorrow the US PMIs. Big misses should lead to more downside for the pair as the market would price out the July hike and probably price in some cuts. On the other hand, big beats should lead to more upside as it would signal that the Fed may have to do more.
See also the video below:
