For two weeks in a row, the USD/JPY currency pair is exposed to profit-taking operations with losses to the 127.02 support level, the lowest in nearly a month. It settled around the 127.60 level at the time of writing the analysis. These losses succeeded in shifting the direction of the technical indicators to the downside, and forex traders are now wondering about the appropriate levels to buy the dollar yen.
I see that the support levels 126.60 and 125.80 are the most appropriate to think about doing this. The US dollar is still the strongest with expectations of raising US interest rates strongly during 2022. In complete contrast to the Japanese yen, it is still receiving more stimulus to face the effects of the epidemic and the consequences of the Russian-Ukrainian war. Nevertheless, high interest rates, high inflation, the war in Ukraine, and a slowdown in the Chinese economy are all factors that punish US stocks and raise concerns about a possible recession in the United States. Adding to concerns is how the superhero that was relayed to save Wall Street in recent downturns, the Federal Reserve, appears less likely to help as it is stuck battling the worst inflation in decades.
On the economic side, USD/JPY is trading influenced by the announcement by the US Labor Department of a relative rise in the number of jobless claims at 218K compared to expectations of 299K for the week ending May 13th. However, continuing claims for the period ending May 6 came in slightly better than expected with 1.317 million claims versus market expectations of 1.32 million. Elsewhere, the Philadelphia Federal Manufacturing Survey returned less optimistic data with a reading of 2.6 compared to expectations of 16.
In Japan, the national CPI for April exceeded the expected performance (annualized) by 1.5% with a change of 2.5%, while the previous CPI for fresh food matched expectations at 2.1%. On the other hand, CPI excluding food and energy for the period beat the expected change at -0.9% with a change of 0.8%.
According to the technical analysis of the currency pair: In the near term and according to the performance of the hourly chart, it appears that the USD/JPY currency pair is trading within the formation of a thin ascending channel. This indicates a slight short-term bullish momentum in the market sentiment. Therefore, the bulls are looking to push the current rebound towards 128.283 or higher to 128.695. On the other hand, the bears will target potential pullback profits at around 127,503 or lower at 127.113.
In the long term and according to the performance on the daily chart, it appears that the USD/JPY is declining within the formation of a short term descending channel after being exhausted by the momentum. This indicates that the bears are trying to control the pair over the long term. Therefore, the bears will target long-term profits at around 125,165 or lower at 121.609. On the other hand, the bulls will look to pounce on potential retracements around 130,544 or higher at 133.857.
