USD/JPY Price Analysis – March 07, 2024

Daily Price Outlook

The USD/JPY currency pair failed to stop its downward trend and remained well-offered around the 147.81 level. However, the reason for its downward rally can be attributed to the bearish US dollar, which lost its momentum in the wake of increasing expectations for an interest rate cut this year. This, along with lower US Treasury yields, put pressure on the US dollar and contributed to the USD/JPY pair's decline. Furthermore, renewed BoJ rate hike bets underpinned the Japanese yen, which was seen as another key factor that kept the USD/JPY pair under pressure. Moreover, the generally weaker tone around the equity markets provided a goodish lift to the safe-haven JPY and kept the currency pair lower for the third successive day.

US Dollar Weakness and Fed Rate-Cut Uncertainty Weigh on USD/JPY Pair

On the US front, the broad-based US dollar is still flashing red and showing bearish momentum near its lowest level since February, as uncertainty looms over the Federal Reserve's rate-cut strategy. This lack of clarity is weighing on the USD/JPY pair, indicating a likely downward trend in the near term. Investors are eyeing Fed Chair Powell's testimony, as well as key economic data like the US Weekly Initial Jobless Claims and Trade Balance figures, ahead of the NFP report on Friday. Powell hinted at rate cuts this year but wants more evidence of inflation easing. Meanwhile, Minneapolis Fed President Kashkari suggests potential rate cuts in 2024, with softer job market data supporting this outlook and keeping pressure on the dollar.

Therefore, the USD/JPY pair is likely to see a downward trend due to the weak US dollar and uncertainty about the Fed's rate-cut strategy, influenced by Powell's testimony and key economic data.

Renewed Expectations of BoJ Policy Shift Bolster Japanese Yen

On the Japan front, the rise in inflation in Tokyo has sparked expectations that the Bank of Japan (BoJ) will soon shift away from its ultra-easy monetary policy, potentially boosting the Japanese Yen. Reports suggest the BoJ may consider ending negative interest rates amid optimistic pay negotiation outcomes expected to fuel spending. BoJ officials, including policymaker Junko Nakagawa and Governor Kazuo Ueda, hint at policy adjustments as Japan's economy progresses towards its inflation target.

Therefore, the renewed expectations of a potential shift in the Bank of Japan's monetary policy have bolstered the Japanese Yen, likely exerting downward pressure on the USD/JPY pair amid uncertainty about the future direction of interest rates.

USD/JPY - Technical Analysis

In today's financial landscape, the USD/JPY pair has observed a notable depreciation, sliding down by 0.85% to 148.174, reflecting a bearish sentiment among traders. This movement situates the currency below its pivot point of 147.48, a critical level that could have served as a springboard for potential upward movements. However, resistance levels at 149.34, 149.82, and notably at 150.83, now seem like distant targets for bulls aiming for a rebound.

Conversely, the support framework beginning at 147.70 and extending down to 147.05 and further to 146.23, outlines key zones where buying interest may potentially cushion further declines. This delineation of support and resistance levels underscores the market's current volatility and the heightened sensitivity to underlying economic indicators and policy announcements.

Technical indicators provide a nuanced view of this pair's trajectory. The Relative Strength Index (RSI) plunges to 15, signaling an oversold condition that might suggest a forthcoming reversal or relief bounce, yet caution is warranted given the overall bearish context. The MACD's current value at -0.19, below its signal line at -0.44, further confirms the bearish momentum but hints at a potential slowing down of selling pressure. The 50-Day EMA at 149.95, standing above the current price, reinforces the bearish outlook and suggests that the path of least resistance is downwards.

Given these observations, the technical outlook for USD/JPY is predominantly bearish in the short term. Traders might consider entering sell positions below 148.571, with a take-profit objective at 147.479 and a stop loss at 149.202 to manage risks effectively. This strategy aligns with the current market sentiment and technical indicators, offering a pragmatic approach to navigating the ongoing volatility.