- The USD/JPY has shown strength against the Japanese yen in recent trading sessions, with the market poised to continue its upward trajectory. On Friday, the dollar tested the ¥138 level, which served as a potential support zone.
- The market's memory of this level, as it represented the top of an ascending triangle, prompted buyers to step in and propel the market higher.
- This renewed buying interest suggests that the dollar will likely push toward the ¥140 level in the near term.
Analyzing the chart, it becomes evident that the breakout from the triangle formation opens the possibility of further gains, potentially reaching the ¥148 level. This bullish sentiment is supported by the ongoing quantitative easing measures implemented by the Bank of Japan, which have a detrimental impact on the value of the yen. Consequently, not only will the dollar outperform the yen, but it is also expected to gain ground against multiple other currencies.
Considering the current market dynamics, any pullback from the recent rally is likely to be perceived as an opportunity to enter the market at an advantageous price point. The strong reaction to the pullback observed on Friday indicates significant interest in this market, reinforcing the notion that the dollar will continue to appreciate. However, if a breakdown were to occur, it would attract considerable attention and potentially result in a significant correction. Traders may find the ¥135 level particularly appealing, as it represents a significant psychological and historical support zone.
The JPY is Likely to Struggle Against the USD
Given these factors, it is prudent to exercise caution when considering short positions on this currency pair. Instead, traders are advised to remain patient and seize opportunities as they arise. Moreover, it is worth noting that the 50-day Exponential Moving Average (EMA) is ascending and is likely to provide technical support in the event of a pullback. If the Federal Reserve maintains its tight monetary policy stance, it is reasonable to expect the Japanese yen to continue facing pressure from the greenback.
Ultimately, the US dollar's strength against the Japanese yen is expected to persist, driven by the wide interest rate differential between the two currencies. The breakout from the ascending triangle pattern suggests a potential upward move toward the ¥140 level, with the possibility of further gains towards ¥148. Traders should remain cautious and monitor market developments closely, utilizing any pullbacks as opportunities to enter the market. The supportive 50-day EMA further bolsters the positive outlook for the dollar. As the Federal Reserve maintains its current monetary policy, the Japanese yen is likely to struggle against the US dollar, cementing its role as the stronger currency in this pairing.
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