The Japanese Yen (JPY) continues to grapple for momentum against its American counterpart as it navigates a narrow range heading into the European session on Monday. The prevailing near-term bias appears to favor bears, fueled by expectations of a delay in the Bank of Japan‘s (BoJ) plan to tighten policies in light of a domestic recession.
Aiding the struggle for the JPY is the modest strength of the US Dollar (USD), driven by speculations that the Federal Reserve (Fed) will maintain higher interest rates. This dynamic serves as a tailwind for the USD/JPY pair, with bullish traders cautious due to concerns that Japanese authorities might intervene to counter further JPY weakness. Additionally, geopolitical tensions from conflicts in the Middle East and the prolonged Russia-Ukraine war support the safe-haven appeal of the JPY, limiting gains for the USD/JPY pair.
Investor attention now turns to the US New Home Sales for potential market impetus, though focus remains fixed on the US Core PCE Price Index scheduled for Thursday.
In recent developments, Israel’s expressed intention to expand operations against Hamas amidst ceasefire uncertainty and Russia’s preparation for a new offensive against Ukraine later this year contribute to the supportive backdrop for the Japanese Yen. Japanese authorities’ warnings of potential market interventions to curb currency weakness further underpin the JPY.
Earlier data revealing Japan’s entry into a technical recession dashes hopes for an exit from the ultra-easy policy regime by the Bank of Japan, placing a cap on the JPY. Meanwhile, the recent release of FOMC meeting minutes and statements from Fed officials suggest a reluctance to cut interest rates, aligning with expectations that the Fed will maintain higher rates for an extended period. This supports elevated US Treasury bond yields and helps the US Dollar hold steady above a three-week low.
The underlying bullish sentiment in global equity markets also undermines the safe-haven appeal of the JPY, acting as a key factor favoring the USD/JPY pair.
As investors await key US macro data, including the Core PCE Price Index, for insights into the Fed’s future policy decisions, the USD/JPY bulls may anticipate a potential move beyond the multi-month top before considering fresh bets.
Technical Analysis: USD/JPY Bulls Eyeing Multi-Month Highs
From a technical standpoint, a meaningful pullback could find support near the psychological mark of 150.00, followed by last week’s swing low around 149.70-149.65. A breach of this level may extend losses towards the 149.35-149.30 horizontal support, aiming for the 149.00 mark. Further downside momentum may materialize with sustained selling below the strong horizontal resistance at 148.80-148.70, potentially favoring bearish traders.
Conversely, bullish momentum awaits confirmation through sustained strength beyond the 150.85-150.90 area or the multi-month top touched on February 13. Positive indicators on the daily chart suggest room for growth, with potential climbs towards the 151.45 hurdle. A breakthrough could extend towards the 152.00 neighborhood, representing a multi-decade peak set in October 2022 and retested in November 2023.
