Technical Analysis

USD/JPY Price Analysis – Dec 21, 2023

By LonghornFX Technical Analysis
Dec 21, 20233 min

Daily Price Outlook

The USD/JPY currency pair has struggled to stop its downward trajectory and continues to face selling pressure, hovering around the 143.00 level. However, this persistent decline can be attributed to a combination of factors, including a weakened US dollar, a more cautious risk sentiment in the market, and an upward adjustment of Japan's growth forecasts. These elements support the safe-haven appeal of the Japanese yen, contributing to the ongoing bearish trend in the USD/JPY pair.

Japanese Yen Strength Amidst Equities Weakness and BoJ's Ultra-Dovish Stance

It's important to highlight that the safe-haven Japanese Yen (JPY) is gaining strength due to a generally weaker tone in equity markets. This boost comes after the Japanese government increased its economic growth estimates. However, the Bank of Japan (BoJ) maintaining an ultra-dovish stance limits further JPY gains.

Meanwhile, the recent Wall Street slump also contributes to the USD/JPY pair facing pressure. Japan's Cabinet Office raised economic growth projections for fiscal 2023/24 to 1.6%, and for 2024/25 to 1.3%. Despite these positive signs, the BoJ's commitment to a loose monetary policy, which tend to undermine the JPY currency and may help the USD/JPY pair to limit its deeper losses.

Factors Influencing US Dollar Strength Amidst Federal Reserve Uncertainty and Positive Economic Data

Furthermore, the US Dollar is getting some support due to uncertainty about when the Federal Reserve will start easing, especially after positive US economic data on Wednesday. Despite talk from influential Fed officials downplaying a shift from their hawkish stance, the US Consumer Confidence Index saw a significant rise in December.

Surprisingly, Existing Home Sales in November went up by 0.8%, breaking a five-month decline trend. Investors are still anticipating a potential early interest rate cut in 2024, leading to lower US bond yields and limiting the strength of the Greenback. The focus now shifts to key economic indicators, including the final US Q3 GDP, Weekly Jobless Claims, and the Philly Fed Manufacturing Index.

Therefore, the uncertainty around the Federal Reserve's easing timeline and positive US economic data provide some support for the US Dollar. This, coupled with the potential for an early interest rate cut, may limit USD/JPY pair strength.

USD/JPY Price Chart – Source: Tradingview
USD/JPY Price Chart – Source: Tradingview

USD/JPY - Technical Analysis

The USD/JPY currency pair is presenting a subdued performance, recently dipping below the 143.00 psychological mark, and now trades at 142.939. This represents a modest retreat of 0.06% within a 24-hour window as observed in the 4-hour chart. Currently, the pair is grappling with a downward pressure that has nudged it beneath the 50-day Exponential Moving Average (EMA) pivot point of 143.827, potentially signaling a bearish shift in momentum.

Resistances lie overhead at 143.171 and a more pronounced one at 143.827, which coincides with the 50 EMA, followed by a stronger barrier at 144.936. To the downside, immediate support emerges at 141.009, with a further safety net at 138.977. The Relative Strength Index (RSI), a gauge of market sentiment, underscores this bearish inclination, registering at 44.69, below the neutral threshold of 50.

This technical configuration suggests the pair may be poised for further declines, with the current slip below the key EMA level reinforcing this outlook. Market participants are now closely monitoring these dynamics, with the potential for continued downward movement if bearish sentiment persists. Conversely, a recovery above the EMA could invalidate this bearish scenario, putting the aforementioned resistance levels back into play. In summary, the USD/JPY is at a technical crossroads, with its near-term trajectory hinging on its ability to either sustain below or recover above the 50-day EMA.

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