The USD/JPY currency pair experiences a complex landscape as traders navigate the impacts of economic data, geopolitical developments, and market sentiment. The US dollar has made a bit of a return, providing a hand to the USD/JPY. A range of technical considerations and current US-China trade relations will make additional increases hard to come by.
The 200-period simple moving average (SMA) on the four-hour chart currently rests near the 144.30 level. This zone serves as a firm floor, protecting USD/JPY from sudden bearish attacks as it nears the psychologically important 144.00 mark. For their part, Japanese Yen bulls fumbled a chance to clear the critical psychological barrier at 145.00. Some analysts advise traders to wait for positioning decisions until one sees confirmation of additional upward movements.
Technical Indicators and Market Sentiment
The USD/JPY pair finds itself in a precarious position, with a number of technical factors weighing on its path. Failure to do so convincingly would show a very skittish market attitude. Traders will want to be on the lookout for follow-through buying. Watch price action that breaks out outside the 145.30 range, touched earlier this week. A clear breakout above this level would be a strong bullish indicator and open the door to more substantial upward movement toward higher targets.
A decline in USD/JPY through the 145.30 region will void any bullish projection. If this shift occurs, it will be a victory for bearish traders in the short run. This change would shift much of the emphasis to the bottom line. Only such moves would start to get prices down in the 143.60-143.50 neighborhood and increase trepidation of a move below 143.00.
Market participants are still keeping an eye on several different factors that would impact these technical signals. The new US-China trade talk optimism is lifting equity markets. This risk-on feeling is proving to be a supportive boost for the USD/JPY. Improving relations between the two major economic rivals invites further demand for USD. This move complicates things further for the world’s currency traders by adding one more, arguably unwieldy, layer of uncertainty.
Impact of US-China Trade Relations
The US-China relationship is a key factor in determining the direction of USD/JPY. Signed in January 2020, the Phase One trade deal represents an important turning point in these relations. The trade wars still waged since 2018 still hammer both economies. Donald Trump is back in the White House, serving an unprecedented third non-consecutive term as the 47th US President. Yet his arrival has increased those tensions and muddled the situation even further.
As optimism about the state of trade negotiations continues, it weighs on demand for safe-haven assets, like the Japanese yen. As a byproduct, this has led to poorer performance for the yen compared to the US dollar. Traders are closely watching any progress in this area, as changes in sentiment have the potential to cause drastic moves in USD/JPY.
Despite the geopolitical backdrop, economic data releases continue to play a key role in dictating market direction. That came against the backdrop of last week’s data, which revealed Japan’s economy had contracted less than first thought during the first quarter. This will undoubtedly have a chilling effect on future trading activity. Futures traders are not looking ahead, with their sight set firmly on Tuesday’s CPI – US Consumer Price Index – release. It’s projected to be up, which would perhaps keep the Federal Reserve from feeling pressured to treat with a wait-and-see approach to any further monetary easing.
Future Prospects and Market Expectations
Looking forward, USD/JPY spot prices are set to test important intermediate resistances near 145.60-145.65. Traders can target the major psychological level of 146.00. Should momentum build further, traders might set their sights on reaching levels around 146.25-146.30, which corresponds with swing highs observed earlier in May.
Uncertainty continues to cloud the future. Traders remain cautious and wary of overextending their positions until clear signals show themselves via market indices or geopolitical events. These underpinnings are masking serious risk that could potently and quickly reverse sentiment. As a result, there’s only so much more blue sky ahead.