USD/JPY Technical Analysis: Look at the Testimony of Jerome Powell

• The bulls’ control over the direction of the price of the USD/JPY currency pair awaits the reaction from the testimony of US Central Bank Governor Jerome Powell today and tomorrow.
• It is important for determining the course of raising US interest rates during the year 2023 and comes before an important event also for the markets at the end of the week, which is the announcement of the numbers of American jobs.
• USD/JPY is settling around the 136.20 resistance at the time of writing.

The US dollar fell victim to lower yields and the euphoric mood in stock markets. It lost most of its gains against the British pound, a currency with deep ties to global risk appetite. While the dollar's decline was not very dramatic, it was strange given the encouraging US data on Friday.

This asymmetric reaction function has been a constant theme in recent months - the greenback often struggles to benefit from strong US releases but drops sharply on any disappointments. Hence, there is a sense of indecision towards the dollar despite the Fed's higher bets, which may reflect optimism about other economic regions given the relentless flows into European equities.

All in all, traders are waiting for a week full of promising events. Where central bank decisions will be in the spotlight in Australia, Canada and Japan. Meanwhile, in the US, US Federal Reserve Chairman Jerome Powell will testify before Congress ahead of the all-important US employment report.

And the ball will be rolling with the RBA early Tuesday as markets pinpoint an 80% probability of a quarter-point rate hike. As it is not fully priced in, the decision to raise interest rates could boost the Aussie for a while, although the overall path of the currency will depend on any signals about the final rate and any developments in China.

And speaking of China, the nation has announced that it will lower its target for economic growth to 5% for the year. This reflects the challenges China faces with deleveraging in the real estate sector, and indicates that the government is not willing to open the stimulus gates just to boost growth any longer. Oil prices and currencies sensitive to China did not accept this signal.

USD/JPY Forecast

There is no change in my technical view of the performance of the USD/JPY currency pair, as the general trend is still bullish, and its gains towards the resistance levels 136.85 and 138.00 confirm the strength of the performance. At the same time, the technical indicators move towards strong overbought levels, unless the dollar gains momentum from positive events and data this week, as it may be subject to profit-taking sales at any time.

On the other hand, according to the performance on the daily chart, breaking the support level at 133.90 is considered a breach of the current bullish channel for the currency pair. The policy divergence of both the Japanese central bank and the US central bank, along with economic performance, still supports the bulls' control over the trend.