- The Bank of Japan decided to keep the country's benchmark interest rate unchanged at -0.1% in line with expectations. Prior to this, the Tokyo CPI for July outperformed the expected (YoY) change of 2.8% with a change of 3.2%.
- The data and the policy of the Japanese Central Bank were negative for the Japanese yen against the rest of the other major currencies. As the US Federal Reserve intends to maintain its tightening policy, the factors were in favor of the strength of the bullish rebound for the USD/JPY currency pair, which bounced upward towards the resistance level at141.17, starting from the support at 138.06 in the same session.
- It was the best daily performance for the currency pair in months, and closed trading stable around the level of 141.15, which paves the way for the bulls to control the trend.
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On the other hand, at the end of last week's trading, US stocks rose recently in the hope that high US inflation would subside enough to force the Federal Reserve to stop raising US interest rates. This, in turn, could allow the economy to continue growing and avoid a long-anticipated recession. Friday's report fueled those hopes, saying that a measure of US inflation, which the Fed prefers to use, slowed last month by a touch more than expected. Perhaps just as importantly, the data also showed that total workers' compensation rose less than expected during the spring.
While this is frustrating for workers looking for bigger raises, investors see it as adding less upward pressure on inflation. Therefore, the hope among traders is that the slowdown in US inflation means that the Federal Reserve's hike in interest rates last week will be the last measure in this cycle. The fed funds rate jumped to a level between 5.25% and 5.50%, up from nearly zero early last year. In general, high-interest rates reduce inflation by slowing down the entire economy and hurting stock prices and other investments.
USD/JPY Technical Outlook
The price of the USD/JPY currency pair has now advanced to trade a few levels above the 100-hour moving average line. As a result, it appears that the currency pair is about to breach the overbought levels of the 14-hour RSI. In the near term, and according to the performance on the hourly chart, it appears that the USD/JPY currency pair is trading within a bullish channel formation. This indicates a significant short-term bullish bias in market sentiment. Therefore, the bulls will look forward to riding the current wave of gains towards 141.58 or higher to the resistance at 141.97. On the other hand, the bears will target profits at around 140.71 or below the support at 140.26.
In the long run, and according to the performance on the daily chart, it appears that the USD/JPY pair is about to complete the formation of the Head and Shoulders pattern. This indicates that the bears are trying to control the pair. Therefore, the bears will look to push the pair below the neckline towards 138.81 or down to the support at 136.85. On the other hand, the bulls will target long-term profits around 143.02 or higher at the 144.87 resistance.
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