USD/JPY Technical Analysis: Fed Reserve Increases Gains

Mahmoud Abdallah

To complete the upward correction path for the performance of the USD/JPY currency pair, the US Central Bank contributed to providing more momentum to push the pair towards the 110.82 resistance level.

This happened in early trading today and is the highest for the pair in two and a half months before settling around the 110.65 level at the time of writing the analysis.

The US dollar's gains against other major currencies increased after the US central bank hinted that it is ready to raise US interest rates sooner than the market expects. Previously, uncertainty about the economy's recovery from the pandemic may have forced Fed officials to push the rate hike schedule further into the future. Now, with the spread of vaccines helping to bring the US economy out of its previous coma, the central bank may feel more confident.

Raising the rate hike schedule may also raise the timing of a potential slowdown in bond purchases by the Fed. In his press conference following the Fed's announcement, Governor Powell said that would be the biggest change in the near term for the markets. He again said the buying would continue until "more significant progress" is made in bringing the economy to full employment and price stability.

He acknowledged that conditions had improved enough to begin a discussion of when to scale back purchases. "You can think of this meeting as a 'talk about talk about' meeting," he said.

In contrast, Japan is expected to ease the coronavirus emergency in Tokyo and most other regions this weekend, with the Olympics starting in just over a month. Since then, daily cases have dropped dramatically, and Japanese Prime Minister Yoshihide Suga is expected to reduce the state of emergency when it ends on Sunday to a less stringent semi-emergency for several weeks.

Despite concerns raised by medical experts and the public about the potential risks of holding the Olympics, Suga said he is determined to hold the "safe and secure" games on July 23. Japan has been struggling since late March to slow the wave of infections caused by more infectious variants, with daily cases exceeding 7,000 and critical patients sweeping hospitals in Tokyo, Osaka and other metro areas.

In Tokyo, infections are now down to about 500 per day from more than 1,100 in mid-May. Tokyo Governor Yuriko Koike said effective measures related to the coronavirus must remain in place. Health experts say it is crucial to speed up the rollout of a vaccine to safely hold the Olympics in one of the world's least developed countries. As of Tuesday, only 5.6% of Japanese have been fully vaccinated.

USD/JPY Technical Analysis: The stability of the USD/JPY currency pair around and above the psychological resistance 110.00 will continue to support the bullish trend. It will also increase the technical purchases to move towards higher peaks and the nearest ones are currently 110.75, 111.20 and 112.00, respectively. On the daily chart, indicators still have the opportunity to move higher until reaching overbought levels. On the other hand, the bears will not control the performance without moving below the 109.00 support. The US dollar will be affected today by the announcement of the number of weekly jobless claims and the reading of the Philadelphia Industrial Index.

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Mahmoud Abdallah
Mahmoud has been working fulltime in the Foreign Exchange markets for 12 years. Offers his analysis, articles and recommendations at the most renewed Arabic websites specialized in the global financial markets, and his experience gained a lot of interest among Arab traders. Works on providing technical analysis, market news, free signals and more with follow up for at least 12 hours a day, and aims to simplify forex trading and the concept of trading for his audience.

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