USD/JPY Buyers Push Higher After Breaking Key Downtrend Line

Market Overview

On Thursday, the U.S. dollar stabilized after recording its strongest rise since early June. The rally was fueled by markets awaiting key speeches from Federal Reserve officials to gain insight into the pace of rate cuts. The dollar showed strong recovery against the euro and the pound, rebounding from its lowest levels in over a year against the euro and two-and-a-half-year lows against the pound.

Of particular note, the Japanese yen weakened to a three-week low of 145.04 against the dollar and is currently trading around 144.77. This decline in the yen’s value is partly due to the Bank of Japan’s (BoJ) ongoing internal debate over the appropriate pace for raising interest rates. While some policymakers are advocating for faster rate hikes, others remain more cautious.

In contrast, the U.S. Federal Reserve is also facing divisions among its members. Many anticipate that the pace of rate cuts will continue, albeit at a slower rate of 25 basis points instead of larger 50 basis point reductions. Currency market volatility remains high, influenced by varying expectations for future monetary policy paths from both the Fed and the BoJ.

Technical Analysis

USD/JPY is showing signs of a bullish reversal on the 4-hour chart. Buyers managed to break above the descending trendline that has been in place since August 16. This breakout above the 144.677 resistance level marks a potential shift in momentum. If buyers can sustain the breakout, the next targets are 145.420, 145.786, and 146.471, with further momentum potentially driving the pair toward 147.214.

Alternative Scenario

If buyers fail to maintain control above the 144.677 resistance level, the price may retreat to the support levels at 143.780 and 142.883. A break below 142.883 would invalidate the current bullish outlook in the short term.

Key Levels Overview:

• Resistance Levels:
  • Resistance 1: 144.677
  • Resistance 2: 145.420
  • Resistance 3: 145.786
  • Resistance 4: 146.471
  • Resistance 5: 147.214
• Current Price: 144.671
• Support Levels:
  • Support 1: 143.780
  • Support 2: 142.883

Key Events to Watch

Several key events on Thursday could significantly impact the market’s direction. The speeches by Federal Reserve Chair Jerome Powell and other Fed officials will provide valuable insight into the central bank’s future monetary policy, particularly concerning the rate-cutting trajectory.

In the U.S., attention will also be on the Q3 GDP growth figures, with an expected 3% growth rate, alongside durable goods orders and weekly unemployment claims. As the Fed shifts its focus from inflation to labor market conditions, these data points could serve as key indicators for future rate decisions.

In Japan, the ongoing discussions within the BoJ about the pace of rate hikes could continue to influence the USD/JPY pair in the coming weeks.

Conclusion

USD/JPY is poised for further gains if buyers can hold above 144.677, with potential upside targets at 145.420 and beyond. However, failure to sustain the breakout could lead to a pullback toward key support levels at 143.780 and 142.883. Market participants should closely monitor upcoming Fed and BoJ developments, which will likely shape the near-term trajectory of the pair.

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