- For the fourth day in a row, the bulls are trying to control the performance of the USD/JPY currency pair.
- The rebound gains stopped at the resistance level of 132.90 in the light of the calm performance for this week's trades.
- The currency pair stabilized around the 131.40 level at the time of writing the analysis, waiting for any news.
- The upward move for the currency pair came as investors priced in the impact of the strong US non-farm payrolls report for January on the Federal Reserve's tightening plans.
However, the Federal Reserve Chairman's Bowl speech yesterday contained conflicting statements about the process of reducing inflation and the possibility of raising US interest rates on the back of strong data.
Statements from FOMC members Williams and Barr and Waller further hinted at the Fed's tightening plans. The tough statements may mean more upside for the US currency while the cautious comments may keep the gains under control.
As for the Japanese yen, there hasn't been much talk about the next Bank of Japan governor so far, with Prime Minister Kishida saying they are still in the process of choosing.
For his part, Neil Kashkari, head of the Federal Reserve Bank in Minneapolis, said that US interest rates will need to rise higher to combat wage growth that helps keep some elements of inflation high in the United States. Regarding American inflation, Kashkari said in a question-and-answer session at the Boston Economic Club: "There are some encouraging indicators." And "there is still not much evidence, in my opinion, that the price increases we have made so far have a significant impact on the labor market. We need to achieve balance in the labor market so that tells me that we need to do more."
Wage increases in the 5% to 6% range are out of line with the Federal Reserve's 2% inflation target and contribute to higher prices in services that exclude food, energy and housing. and includes everything from concerts to accountants. In two televised afternoons on Tuesday, Kashkari said the Fed would likely need to raise interest rates to around 5.4% in order to bring inflation down to its 2% target.
Overall, policymakers raised the benchmark interest rate by a quarter of a percentage point to a range of 4.5% to 4.75% last week. The smaller move came after a half-point increase in December and four huge 75-basis point gains before that. For his part, Bank Governor Jerome Powell, speaking in an interview on Tuesday, said that additional interest rate hikes are needed to calm inflation, and that officials may need to do more than previously thought if economic data continues to rise.
Technical analysis of the currency pair
- USD/JPY has recently broken out of a bearish triangle on the hourly time frame, indicating that an uptrend at the same height as the chart pattern is imminent.
- The price has since retreated from the highs around 133.00 to fall back into the area of interest.
- The Fibonacci retracement tool shows that the 61.8% level lines up with the previous triangle top around 130.00 a key psychological mark.
If this holds as support, USD/JPY could resume the rally to the swing top and beyond. The 100 SMA has crossed above the 200 SMA to confirm that the general trend is up and that support levels are more likely to hold than to break. The 100 SMA is close to the 50% Fibonacci at 130.50 a secondary psychological marker, increasing its strength as a support.
Stochastic has already risen above the oversold zone to indicate a recovery of bullish momentum. The oscillator has room to go higher before signaling exhaustion among buyers, so the rally may continue from here. The RSI also seems to have pulled out of the oversold zone but is turning lower again to hint at the return of bearish pressure.
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