- The USD/JPY currency pair had a generally bullish performance last week, testing the 150.77 resistance level and closing around 150.35 at the time of writing this analysis.
- As we mentioned before the divergence between the future policies of the US Federal Reserve and the Bank of Japan will remain an important factor for the continuation of the uptrend.
- Last week, conversations in Forex circles focused on whether investors’ lust for Nvidia shares extended to the Forex markets.
- We noticed that the decline in the GBP/USD exchange rate at the end of last week was centred around the opening of the US stock market, which saw billions of dollars flow into Nvidia, the artificial intelligence company.
- This suggests that demand for US stocks is driving demand for the US dollar.
Now, analyzes by Credit Agricole and HSBC suggest that these doubts are justified. Where Valentin Marinov says. Head of the Forex Research Department at Credit Agricole, “One of the most interesting developments in the Forex currency markets since the beginning of 2024 is the close correlation between the US dollar and US stock markets in general – and the shares of technology companies “Magnificent 7” in particular.”
The forex currency analysis team at Crédit Agricole concludes that the performance of US technology stocks appears to be driving at least some of the recent performance of the US dollar. However, looking ahead, Crédit Agricole believes there is a limit to the extent of support for the strong performance of the stock market for the US dollar. The analyst added, "In fact, the end of February may see selling of the US dollar by real money investors rebalancing their global equity portfolios. Indeed, we note that months in which global stock markets have risen have typically seen pressure on the US dollar at month-end, amid rebalancing of hedge flows."
For their part, Forex currency analysts at HSBC Bank also see a shift in market dynamics, as US stock market gains now prove supportive of the US dollar, upending the long-term relationship between the currency and stocks. According to the bank’s analysts, “During most of 2023, the correlation between the US dollar and stocks was significantly inverse, with the US dollar’s role as a safe haven being the dominant consideration.” Hence, when stocks were on the defensive amid rising revenues in 3Q23, the US dollar had risen. Moreover, when stocks boomed amid increasing market caution in 4Q23, the US dollar struggled. Ultimately, this correlation weakened as stocks and US dollar correlations moved towards zero.”
USD/JPY Technical Analysis and Expectations Today:
Currently, the price of the USD/JPY pair has risen to trade at a few levels above the 100-hour moving average line. As a result, it appears that the currency pair is about to enter the overbought levels of the RSI on the 14-hour frame. In the near term, and according to the performance on the hourly chart, it appears that the USD/JPY pair is trading within an ascending channel. The currency pair has now advanced to trade near the overbought levels of the 14-hour RSI. Therefore, the bulls will target extended gains at around 151.07 or higher at the 151.47 resistance. On the other hand, the bears will look to pounce on pullbacks at around 150.23 or lower at the 149.81 support.
In the long term, and according to the performance on the daily chart, it appears that the USD/JPY pair is trading within an upward channel. Also, the 14-day RSI appears to support a long-term bullish bias as it approaches overbought levels. Therefore, the bulls will look for a continuation of the current winning streak towards 152.00 or higher to the 153.32 resistance. On the other hand, the bears will look to pounce on profits at around 149.07 or lower at the 147.68 support.
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