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USD/JPY at Key Confluence Area with US Data Ahead

USD/JPY at Key Confluence Area with US Data Ahead

Zain Vawda, Analyst

USD/JPY Price, Chart, and Analysis:

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Most Read: US Dollar (DXY) Shrugs Off the Fed, Focus Now Turns to NFPs

USD/JPY FUNDAMENTAL BACKDROP

USD/JPY stalled in early European trade before dollar bulls returned eyeing a trendline breakout which could facilitate a larger upside move. The 133.00 handle is a key confluence area with a daily candle close likely holding the key in regard to USDJPYs next move.

The Bank of Japan continued unscheduled bond buying yesterday for a fourth successive day as Governor Kuroda confirmed the Central Bank would continue with monetary easing in order to achieve its sustainable price target. Optimism continues to grow among market participants that the BoJ will lift its yield cap further or get rid of it altogether if inflation continues to rise in Japan.

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Tuesdays Rally in the US dollar index has failed to follow through with a bearish day yesterday. The index remains in a wedge pattern since November 14 with the Federal Reserve minutes released yesterday failing to inspire a breakout. The Fed did reiterate the need to keep rates higher for longer with some members still of the opinion that the effects of rate hikes continue to lag. The US dollar index has seen a modest bounce this morning but remains within the falling wedge pattern. The question is whether todays US data or tomorrows NFP report will provide a catalyst for a sustained breakout? Time will tell…

US Dollar Index Daily Chart- January 5,2023

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Source: TradingView

On the calendar front we have a host of medium impact data due out later in the day with eyes firmly on the initial jobless claims number ahead of tomorrow’s NFP Jobs report. We also have S&P Global Composite and Services PMI numbers as well as speeches by Fed policymakers Bostic and Bullard which could add some volatility later in the day.

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For all market-moving economic releases and events, see the DailyFX Calendar

TECHNICAL OUTLOOK

From a technical perspective, USD/JPY has posted 2 consecutive days of gains with the pair now approaching the descending trendline as well as key resistance level around the 132.80 handle. This is a key area which could see a break of the trendline lead to a significant upside rally, targeting the 200-day MA or the resistance area around 135.50.

Alternatively, a rejection of the trendline and push lower would put USDJPY on course for a new lower low, back below the 130.00 psychological level. In order for a push lower than 130.00 we would need to see a candle break and close below the 130.00 handle.

USD/JPY Daily Chart – January 5, 2023

Chart, line chart  Description automatically generated

Source: TradingView

IG CLIENT SENTIMENT DATA: MIXED

IGCS shows retail traders are currently SHORT on USD/JPY, with 55% of traders currently holding short positions. At DailyFX we typically take a contrarian view to crowd sentiment, and the fact that traders are short suggests that USD/JPY may continue rise.

Written by: Zain Vawda, Markets Writer for DailyFX.com

Contact and follow Zain on Twitter: @zvawda

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

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