Technical Analysis

USD/JPY Price Analysis – Feb 01, 2024

By LonghornFX Technical Analysis
Feb 1, 20244 min

Daily Price Outlook

Despite the bullish US dollar, the USD/JPY currency pair has failed to halt its downward trend and is still showing weakness around the 146.75 level. However, the reason for its declining streak can be attributed to geopolitical risks and China's economic woes, which tend to support the safe-haven Japanese yen and contribute to the USD/JPY losses. In contrast to this, the bullish US dollar, backed by Fed Chair Powell's hawkish comments, is seen as one of the key factors that could help limit deeper losses for the USD/JPY pair.

US Dollar's Resilience and Impact on USD/JPY Pair

The broad-based US Dollar initially dropped due to weak employment figures but recovered on positive comments from Fed Chair Powell and higher Treasury yields. Rising tensions in the Middle East supported the dollar, limiting losses in the USD/JPY pair. The US ADP Employment Change for January was 107K, below the expected 145K. Thursday's focus includes US Initial Jobless Claims, Nonfarm Productivity, and ISM Manufacturing PMI.

Despite lower yields, the US Treasury remains stable, planning to borrow $760 billion in Q1, which is less than the October estimate. The Employment Cost Index eased to 0.9% in Q4, below the expected 1.0%. January's Chicago Purchasing Managers' Index was 46, missing expectations, and US JOLTS Job Openings improved to 9.026M in December, exceeding the expected 8.75M. The US Housing Price Index (MoM) stayed flat at 0.3% in November. Therefore, the bullish US dollar was seen as one of the key factors that help the USD/JPY pair limit its deeper losses.

Factors Driving Japanese Yen Strength and Impact on USD/JPY Pair

It's worth noting that recent tensions in the Middle East and China's economic struggles are causing concerns among investors. This situation is boosting the Japanese Yen's safe-haven status, especially with the Bank of Japan expressing a more cautious stance last week. The US-Japan interest rate difference is also narrowing due to a drop in US Treasury bond yields, supporting the Japanese Yen against the US Dollar.

Therefore, the recent Middle East tensions, China's economic concerns, and the Bank of Japan's cautious stance are strengthening the Japanese Yen. This, coupled with the narrowing US-Japan interest rate difference, is putting downward pressure on the USD/JPY pair.

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

USD/JPY - Technical Analysis

The USD/JPY pair on February 1st presents a nuanced landscape for traders, with a slight decline of 0.18%, positioning the pair at 146.632. This movement indicates a cautious market sentiment as investors parse through various economic cues and technical signals.

A technical analysis reveals the pivot point at 145.87, serving as a foundational level for the pair's current dynamics. Resistance is encountered first at 147.00, with subsequent barriers at 147.87 and 149.04, delineating the potential upward journey for the pair. Conversely, immediate support materializes at 145.00, followed by more substantial levels at 144.08 and 143.17, essential for buffering any downward trends.

The Relative Strength Index (RSI) at 38 leans towards a bearish sentiment, hovering close to the oversold territory but without fully committing. The Moving Average Convergence Divergence (MACD) indicator further accentuates this stance, with a reading of -0.23 beneath the signal line of -0.11, implying a potential continuation of the current downtrend.

Positioned around the 146.600 level, the USD/JPY pair finds itself at a critical 50% Fibonacci retracement level, suggesting a significant technical juncture. The 50-day Exponential Moving Average (EMA) at 147.08 stands slightly above the current price, possibly acting as resistance in the near term.

Given these technical observations, the current sentiment for the USD/JPY pair leans towards a cautious outlook. Traders might consider a strategic entry above 146.671, with an eye for taking profits at 147.640 while placing a stop loss at 145.894 to manage potential risks effectively.

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