The USD/JPY currency pair experienced an upward movement as the market significantly scaled back its expectations of a Bank of Japan (BOJ) rate hike this week. Concurrently, U.S. Treasuries witnessed a sell-off last Friday, leading to a sharp rise in UST yields. The pair was last trading at 153.70, as reported by OCBC’s FX analysts Frances Cheung and Christopher Wong.
In terms of technical analysis, the breakout of USD/JPY was anticipated in OCBC’s technical scan. Last week, the analysts highlighted the moving averages compression (MAC) pattern, which often precedes a breakout trade. Currently, the daily momentum has turned mildly bullish, and the Relative Strength Index (RSI) has risen close to overbought conditions. Resistance levels are identified at 154.80 and 155.90, while support is seen at 152.70 and 152.10 (corresponding to the 21, 100, and 200-day moving averages). A decline back below the moving average ‘convergence level’ would invalidate the bullish breakout.
This week, the BOJ’s Monetary Policy Committee (MPC) meeting on 19 December holds significance for the USD/JPY. OCBC anticipates the BOJ to continue with its policy normalization through a rate hike this week and into 2025. The recent increase in base pay bolsters the view of positive developments in the labor market. Coupled with still elevated services inflation, better third-quarter GDP figures, and expectations of 5-6% wage hikes for 2025, there is room for the BOJ’s policy normalization.
However, there is a risk that a slowdown in the pace of policy normalization by either the Federal Reserve or the BOJ could impact the movements of the USD/JPY.
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