- The return of the look of the clear divergence between the future of the Japanese central bank’s policy, even under new leadership, and the policy of the US Federal Reserve.
- This ensures that the bulls control the performance of the USD/JPY currency pair, with gains that reached the resistance level of 135.22.
- It settled around the level of 134.70 at the time of writing the analysis.
The dollar could hold steady in the near term, but forex analysts at Standard Chartered say the strength should likely be short-lived, allowing the likes of the euro and the pound to resume the stalled uptrend. But the window for earnings is limited to weeks, says the Asia-focused UK-based lender and investment bank.
In a new research note, Standard Chartered said that the recent rally in the dollar comes as investors revise their higher expectations of peak US interest rates, something that is affecting stocks, increasing investor uncertainty, and stimulating demand for dollars.
For his part, Rajat Bhattacharya, chief investment analyst at Standard Chartered, said that “It seems that the US dollar has acquired a tailwind after a series of surprises in US economic data. While the strong data reduces the risk of a US recession in the near term, it does make it more likely that the Fed will continue to raise interest rates for the time being”.
Although the dollar has regained some of its lost value recently, Standard Chartered estimates that a return to the US dollar level for 2022 is unlikely.
“We also expect that the recovery of the US dollar will fade in the next three months, along with the US government bond yields, as it becomes clear that higher interest rates will eventually lead to a recession, which leads to a reduction in the expectations of the US interest rate,” added the analyst.
In general, the US dollar rose during February on the back of a wave of stronger-than-expected economic data. These include strong wages and employment gains and strong retail sales which indicate that the consumer-led US economy is still capable of generating above-target inflation rates.
Meanwhile, the upward shift in the value of the US dollar corresponds to the peaks of the GBP/USD and EUR/USD exchange rates, so the outlook for these pairs could ultimately depend on the developments of the US dollar.
Money market pricing shows that investors are now positioned to hike the Fed rate in March and May, but the latest significant development is pricing in an additional 25 basis point hike in June. Meanwhile, the prospect of a rate cut by the end of the year has eased. But repricing interest rates higher is now well understood and the Fed is unlikely to push rates higher than expected in current projections. Thus, this limits the dollar's upside potential.
Bank of America forex analysts also see the dollar retaining strength over the coming weeks, but a broader pullback in the middle of the year is likely.
USD/JPY Forecast
According to the performance on the daily time frame chart below, the price of the USD/JPY currency pair is moving inside an ascending channel that was formed recently with a correction after the collapse of the currency pair to the psychological support level of 128.00 at the beginning of trading this month. Expectations for the future of changing the policy of the Central Bank of Japan are increasing, considering the new leadership and the calm pace of raising the US interest rate. With the occurrence of the opposite, the bulls found the opportunity to achieve the recent strong gains, which in turn moved the technical indicators toward overbought levels.
However, the US dollar may remain supported by the US Federal Reserve's signals of tightening if stronger US GDP growth is announced today and weekly jobless claims continue to decline. The closest resistance levels for the currency pair are currently 135.75 and 136.60, respectively. On the other hand, an exit from the current ascending channel will not occur without the dollar-yen pair moving toward the support levels at 132.80 and 131.30, respectively.
