The USD/JPY rebounded this week, testing resistance levels on the back of positive U.S. consumer sentiment and personal spending data. The pair touched a fresh low of 149.47 before recovering to 149.77, marking a positive start to the week.
The pair is currently testing resistance levels, with the previous high of 149.81 acting as a significant barrier. The H1 chart shows strong demand around the previous low of 149.32 and a rebound to the upside. However, the breakout of the rising wedge suggests the potential for a larger bearish move. While a break above the former high could signal a potential sell-off, a close above 149.81 could spur growth towards the uptrend line.
On the other hand, a bearish close below 149.32 could signal a larger bearish move and provide a good selling opportunity after a retest of broken support levels. These moves come amid expectations of a steady monetary policy from the Bank of Japan (BOJ) and upcoming economic data releases from both Japan and the U.S., which could significantly influence the pair’s volatility.
Earlier this week, the USD/JPY saw some buying activity as it recovered from earlier losses due to the divergence in policy between the BOJ and the Federal Reserve (Fed) regarding yield curve control (YCC). The BOJ is expected to maintain negative interest rates, while the Fed is expected to be hawkish, supporting the USD/JPY.
The US dollar has been supported by high Treasury yields and rapid US economic growth, which has been reported as the fastest in almost two years. This growth was accompanied by increased consumer spending in September and a higher monthly inflation print.
Despite these robust indicators, investors are expecting a status quo at the Fed’s upcoming two-day policy meeting. Potential FX intervention by the Japanese authorities to counter Yen depreciation and upcoming central bank event risks may limit further USD/JPY gains. However, the fundamental backdrop currently favors bullish traders.
