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Dollar Yen Outlook: USD/JPY Trades Lower as Dollar Gives Back Gains

Dollar Yen Outlook: USD/JPY Trades Lower as Dollar Gives Back Gains

Tammy Da Costa, Analyst

USD/JPY Price Action:

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USD/JPY Trades Lower as China Protests Rattle Markets

USD/JPY is trading lower as lower US bond yields and an increase in risk aversion bolstered demand for the safe-haven Yen.

As China lockdowns remain a prominent driver of sentiment and for future growth prospects, the strict restrictions remain a hinderance to the global economy. After over 100 days of lockdowns in numerous cities within the world’s second largest economy, angry protestors have taken to the streets demanding an end to the Covid-zero policy.

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With the major currency pair recently climbing to its highest level since 1990, failure to hold above the October 21 high of 151.94 has driven USD/JPY lower. While Japan’s loose monetary policy has placed a heavy burden on the Yen since the beginning of the year, a deceleration in the Fed’s pace of tightening has limited further gains.

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USD/JPY Technical Analysis

Although the Japanese Yen still has a long way to go to erase this year’s losses, a 7% decline in November has allowed bears to push prices back below prior psychological support at 140.00. As the downtrend manages to gain traction, a new zone of technical support has formed around 138.00.

After a temporary break below the rising trendline from the May move, a long-wick candle is forming on the daily chart. With the body of the candle rising back above the bullish trendline, a firm barrier of support and resistance continues to form between 138 and 140.

USD/JPY Daily Chart

Chart  Description automatically generated

Chart prepared by Tammy Da Costa using TradingView

For bearish continuation to prevail, a hold below 138 could drive USD/JPY towards Fibonacci support of the 2022 move at 137.253. As this week’s economic docket highlights key US data points, weaker than expected data and increased selling pressure could open the door for further declines towards the 2002 high of 135.16.

--- Written by Tammy Da Costa, Analyst for DailyFX.com

Contact and follow Tammy on Twitter: @Tams707

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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