JPY has sharply strengthened

By RoboForex Analytical Department

On Thursday, the yen strengthened against the US dollar in response to improving Federal Reserve interest rate prospects. The USDJPY pair has declined to 153.88.

Following the release of the latest US inflation data for April, the likelihood of lowering borrowing costs in the country increased markedly. Both the overall and the core consumer price index slowed in April, while retail sales stagnated. Hypothetically, an interest rate cut from the Federal Reserve means a narrower gap between the Federal Reserve and the Bank of Japan’s monetary approaches, which is a positive signal for the yen.

Japan’s GDP statistics for Q1 2024 were weaker than expected. The economy contracted by 2.0% y/y compared to the expected decline of 1.5%. The primary driver for this contraction is weak private consumption, which has declined for four consecutive quarters.

Such a report presents significant challenges for the Bank of Japan. The regulator needs to take action to maintain a balance between supporting the economy and addressing the consequences of the weak yen.

USD/JPY Technical Analysis

On the H4 chart, USDJPY has completed a corrective wave, reaching 156.76. Today, another decline towards 151.40 is forming. After the price reaches this level, a correction could start, aiming for 154.80 (testing from below). Subsequently, the trend might continue to 149.00, representing the first target of the declining wave. This scenario is technically confirmed by the MACD oscillator, with its signal line below the zero level, directed strictly downwards.

On the H1 chart, USDJPY has completed an impulse structure, reaching 154.80. A narrow consolidation range has formed around this level. Today, with a downward breakout, the price has reached the local target of 153.60. Next, a rise to 154.80 (testing from below) is expected, followed by another possible decline wave, aiming for 152.90 and potentially continuing to 151.40. Technically, this scenario is confirmed by the Stochastic oscillator, with its signal line above 20, poised to rise to 80.

Disclaimer

Any forecasts contained herein are based on the author's particular opinion. This analysis may not be treated as trading advice. RoboForex bears no responsibility for trading results based on trading recommendations and reviews contained herein.