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USD/JPY Forecast :
The Psychological Resistance Level of 160.00 Remains in Sight - In the last trading session of last week, the bulls' control over the USD/JPY pair culminated in a move towards the resistance level of 158.88, the highest level for the pair in six months.
- Its gains increased as uncertainty persisted over the timing of Japan's interest rate hike.
- In addition, Japanese Economy Minister Ryusei Akazawa stated that the economy is at a“critical stage” in overcoming the public's deflationary mindset, but he did not provide any clear indication of when the Bank of Japan might raise interest rates.
- However, on the same trading day, the USD/JPY pair was exposed to profit-taking despite stronger-than-expected US jobs figures, with losses extending to 157.22 before closing trading stable around 157.70.
On the economic data front, household spending in Japan fell 0.4% year-on-year in November, while household income rose 0.7%. Externally, the Japanese yen faced additional pressure from the recent widening of the yield differential between the United States and Japan, driven by hawkish signals from the US Federal Reserve.
On the US side, according to economic calendar data, US job growth rates increased and unemployment rates decreased last month. According to an official announcement, the US economy added a total of 256,000 jobs last month, up from 212,000 jobs in November. The country's unemployment rate, which was expected to remain at around 4.2%, fell to 4.1% last month. Overall, the final US jobs report for 2024 confirms that the economy and employment were able to grow at a strong pace even with interest rates significantly higher than before the pandemic. As a result, the likelihood of the US Federal Reserve cutting borrowing costs again in the coming months may be much lower.
Overall, the Federal Reserve has cut US interest rates three times in the past year in part due to concerns about slowing employment and growth. Strong jobs numbers suggest the economy is entering a post-Covid period of steady growth, higher interest rates, low unemployment and slightly higher inflation.
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Don't be fooled by the recent USD/JPY sell-off, it's a natural thing after recent gains. The foundations of bullish control are in place and eyes are still easily set on the psychological resistance of 160.00Expectations of a Pause in US Interest Rate Cuts
Following the latest economic data, expectations have increased that the US Federal Reserve may pause the pace of US interest rate cuts in the coming months amid concerns that Trump's aggressive trade policies towards major global economies could re-ignite inflation.
Overall, the US numbers are likely to support policymakers' intention to move cautiously this year – their December forecasts showed only two US interest rate cuts by 2025 – amid a clear pause in progress towards the 2% inflation target. Recently, Wall Street investors and economists had already scaled back expectations for rate cuts after the release. Also, this week's US consumer and wholesale price reports will provide further clues on where inflation is headed ahead of the Fed's next policy meeting on January 28-29/JPY Technical Analysis and Expectations Today:
Based on recent trading, USD/JPY is now trading slightly below its 100-hour moving average. However, the currency pair still has plenty of room to run before reaching oversold levels on the 14-hour RSI. In the near term, bears will look to extend the current decline towards 157.48 or lower to the support at 156.90. Bulls, on the other hand, will look to rebound higher with gains to the resistance levels at 158.00 and 158.65, respectively.
In the long term, based on the daily chart, the USD/JPY pair is trading in an ascending channel formation. Also, the 14-day RSI supports a long-term bullish bias as it approaches overbought levels. Therefore, bulls will seek to extend the overall uptrend gains towards the psychological resistance level of 160.00 or higher to the resistance of 162.60 respectively, which is enough to push all technical indicators towards strong overbought levels. On the other hand, and in the same time frame, bears will seek to benefit from pullbacks around 155.00 or lower at the support of 152.30 respectively.
EURUSD Chart by TradingView
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