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USD/JPY Analysis: Uptrend Still the Strongest

  • The yen fell to over 156 yen to the dollar, hitting its lowest level in a week as the dollar rose after a Fed official offered a more hawkish outlook on US interest rates than markets had expected.
  • This means that the wide interest rate differential between the US and Japan will continue to put pressure on the yen as carry trades remain attractive.
  • Currently, USD/JPY gains are stable around the 156.50 resistance level at the time of writing.

USD/JPY Analysis Today 21/5: Uptrend Still Strong (graph)

Meanwhile, financial markets were cautious about pushing the Japanese yen to new lows as the risk of government intervention remained. Japanese Finance Minister Shunichi Suzuki expressed his concerns about the negative impact of the weak currency on wage increases. Overall, investors are now looking to a series of economic reports in Japan this week including trade, inflation, and business activity data for further guidance.

According to the platforms of stock trading companies, the S&P 500 index of US stocks added approximately 0.1%, and is hovering at record levels and heading towards recording its twenty-fourth record close this year. Also, the Nasdaq 100 index achieved a new record high, ending with a rise of 0.6% against the backdrop of a rise in technology company stocks. On the other hand, the Dow Jones Index fell by 196 points, affected by a 4.5% decline in JP Morgan Chase shares.

In general, investors are looking for additional hints about the timing of US interest rate cuts by the Federal Reserve, as several Fed officials are scheduled to speak and release the minutes of the Federal Open Market Committee (FOMC) meeting this week. Among stocks, Nvidia shares rose 2.5%, pushing the sector higher. Shares of other chipmakers, including Applied Materials (+3.7%), KLA (+3.3%), and Micron Technology (+2.9%), also saw gains.

In contrast, Target shares fell 2.2% after the retailer announced it would lower prices on nearly 5,000 frequently purchased products to attract cost-conscious consumers. Earnings season continues, with attention turning to results from retailers throughout the week, as well as Nvidia's quarterly results.

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    On the US central bank policy front, the Fed kept the target range for the federal funds rate unchanged at 5.25%-5.50% at its May meeting for the sixth consecutive time, as continued inflationary pressures. Moreover, a tight labor market indicate a halt in progress towards returning inflation to its normal levels 2% target this year and policymakers acknowledged that while inflation has moderated over the past year. Furthermore, it remains high and there has been a noticeable lack of further progress towards achieving the central bank's target in recent months.

    However, Fed Chairman Powell said he does not expect a potential surge and believes current policy is restrictive enough to achieve the 2% inflation target. Also, the Fed announced its intention to slow its quantitative tightening starting June 1, an adjustment that will involve reducing the maximum number of Treasuries removed from the balance sheet by more than 50%, down to $25 billion per month from the previous $60 billion.

    USD/JPY Technical Analysis and Expectations Today:

    According to the performance on the daily chart above, the price of the US dollar against the Japanese yen (USD/JPY) is on its broader upward path and may remain so until there is Japanese intervention in the currency markets to stop further collapse of the currency price. Currently, the closest resistance levels to the trend are 157.00, 157.75, and 158.60, respectively. To break the current trend, bears must move the currency pair below the support level of 153.00. Moreover, the policy divergence of the US Central Bank and the Bank of Japan will remain a motivating factor for bulls.

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    Mahmoud Abdallah
    About 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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