USD/JPY Technical Analysis: General Trend Still Bullish

Mahmoud Abdallah

The US dollar fell after the release of US inflation data that indicated that inflationary pressure may be temporary, thus easing pressure on the Federal Reserve to tighten monetary policy. Accordingly, the price of the USD/JPY fell to the level of 110.30, after its recent sharp gains hit the resistance level of 110.80, its highest in more than a month. The pair settled around the 110.43 level at the beginning of trading today, ahead of the release of more important US economic data for this week.

Advertisement
The yen is a popular asset during turbulent times.

The US dollar was bidding for most of 2021 based on the view that a rapidly improving US economy and rising inflation would force the US Federal Reserve to end its quantitative easing program and begin a series of interest rate increases. Inflation rising above the Fed's 2.0% target indicates that this process must begin sooner rather than later, something that a number of Fed officials have recently suggested.

However, the majority of Fed officials have emphasized that the rate hike is likely to be transient in nature. Instead, they prefer to let prices fall and allow their generous monetary support to help boost the labor market. The dollar's decline after inflation figures suggests that the Fed's patient approach is already warranted.

But while the dollar gave a quick reaction by falling after the data, some economists expect US inflation to remain stubbornly high, suggesting that the numbers are in no way a break from the dollar's bullish direction. So economists at Wells Fargo note that there is also evidence that price pressures are continuing to expand, which should keep the heat on inflation elevated for a while. Sarah House, chief economist at Wells Fargo Securities, LLC says: “Price pressure continues to expand beyond the categories most associated with reopenings, as companies find it easier to pass on costs today than they would ordinarily do at a later time."

In fact, prices for essential goods excluding used cars have risen 3.6% over the past year, the fastest pace since the early 1990s.

In the near term, economists at RBC Capital Markets expect the growth in prices for goods and services that have been largely unavailable over the past year to continue to accelerate, while early indications from wholesale auto markets suggest that gains in used car prices are expected to unwind some of what It is modern.

Technical analysis of the pair

There is no change in my technical view of the USD/JPY pair. The general trend so far is still bullish as long as it is stable above the psychological resistance of 110.00, and the currency pair may be exposed to a selloff if the US data today are also weaker, including the reading of the Producer Price Index, one of the tools for measuring US inflation, and the number of weekly jobless claims. Currently, the closest support levels for the pair are 110.10, 109.55 and 108.80, and the second and third levels would be confirmation of general bearish trend.

USD/JPY

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.

Did you like what you read? Let us know what you think!

exclamation mark

Please make sure your comments are appropriate and that they do not promote services or products, political parties, campaign material or ballot propositions. Comments that contain abusive, vulgar, offensive, threatening or harassing language, or personal attacks of any kind will be deleted. Comments including inappropriate will also be removed.

0 User comments

exclamation mark

Please make sure your comments are appropriate and that they do not promote services or products, political parties, campaign material or ballot propositions. Comments that contain abusive, vulgar, offensive, threatening or harassing language, or personal attacks of any kind will be deleted. Comments including inappropriate will also be removed.

Read more
Add new comment
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.