The USD weakened across the board recently due to a more dovish than expected FOMC decision last week where the Fed decided to signal a bigger QT taper beginning in June and the Fed Chair Powell pushing back repeatedly against rate hike expectations. Moreover, the data on Friday showed that the Fed might indeed just keep rates higher for longer as job and wage growth soften.

The JPY, on the other hand, doesn’t have much fundamental support as the BoJ might not be able to lift interest rates again given the easing inflation rates, although there might be some short-term support from hawkish messages around the reduction of the QE programme. All else being equal, the USDJPY pair should remain in an uptrend both from the Fed’s higher for longer stance and global growth expectations. The only thing that can change the trend at the moment is much weaker US data.

USDJPY Technical Analysis – Daily Timeframe

USDJPY Technical Analysis

On the daily chart, we can see that USDJPY has been rallying steadily since the US NFP report as the dip-buyers took advantage of the spike lower to pile in at a strong support zone around the 152.00 handle. There’s basically nothing that can stop the pair from retesting the key 160.00 level as the Japanese officials are unlikely to intervene again before that level, especially given the obvious failure from the prior interventions.

USDJPY Technical Analysis – 1 hour Timeframe

USDJPY Technical Analysis
USDJPY 1 hour

On the 1 hour chart, we can see that the break above the key 155.00 handle opened the door for a rally into the 156.28 swing level. A break above that level should clear the way for the rally into the 160.00 handle as the buyers will likely pile in more aggressively. The sellers, on the other hand, don’t have much to work with before the 160.00 handle, so it would be better to wait for a bearish catalyst before taking new short positions.

Upcoming Catalysts

Tomorrow we get the Japanese wage data and the US Jobless Claims figures while on Friday we conclude the week with the University of Michigan Consumer Sentiment. Unless we get big surprises, it’s unlikely that the data will change the market’s expectations that much, so the price action might remain tentative heading into the US CPI next week, although the bias should remain bullish.

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