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USD/JPY Remains Under Pressure Amidst Short-Term Downtrend Channel

USD/JPY Remains Under Pressure Amidst Short-Term Downtrend Channel

Market Overview

As we approach the beginning of the trading week, USD/JPY continues to exhibit bearish momentum, remaining within a short-term downtrend channel. This movement is largely driven by a broader sell-off in the U.S. dollar following recent comments from Federal Reserve Chairman Jerome Powell, which suggested a more accommodative monetary policy stance. Powell’s remarks, indicating that the time has come to adopt an easing policy, have prompted a sharp depreciation of the dollar as traders anticipate a potential rate cut in September.

The speculative long positions in the dollar, which have been built up across various currencies including the euro, yen, pound, Swiss franc, Canadian dollar, and Australian dollar, have decreased significantly. For the week ending August 20, net speculative contracts reduced from $9.54 billion to $3.14 billion, reflecting a substantial reduction in bullish bets on the greenback. The USD Index, which tracks the dollar against a basket of six major currencies, has broken below the key support level of 100.61, further emphasizing the dollar’s bearish outlook.

Technical Analysis

On the technical front, USD/JPY is trading near the lower boundary of its descending channel, with sellers intensifying their efforts. The pair has breached the previous support at 144.449, indicating a continuation of the downtrend. The next key support level to watch is 143.166. If sellers manage to maintain pressure and break this support, it could pave the way for a move towards 142.373 and eventually 141.090, aligning with the lower trendline of the descending channel.

Oscillators Confirmation

RSI: The Relative Strength Index (RSI) remains in the bearish territory, below the 50 mark, indicating sustained selling pressure and momentum.

MACD: The Moving Average Convergence Divergence (MACD) indicator is also in negative territory, with the MACD line below the signal line, reinforcing the bearish trend.

Moving Averages: The price is currently trading below both the 34 and 100-period moving averages, further confirming the downward momentum.

Alternative Scenario

Should the price reverse and break above the resistance at 146.525, it would suggest a potential trend reversal to the upside. This breakout would need to be supported by a shift in market sentiment and a corresponding change in the technical indicators, such as the RSI moving above 50 and the MACD line crossing above the signal line.

Key Levels

Resistance Levels:

  • Resistance 3: 146.525
  • Resistance 2: 145.242
  • Resistance 1: 144.449

Current Price (at the time of analysis): 143.843

Support Levels:

  • Support 1: 143.166
  • Support 2: 142.373
  • Support 3: 141.090

Key Events to Watch

Several economic events this week could impact the USD/JPY pair:

  1. Durable Goods Orders (Monday): Unexpected growth in durable goods orders could provide temporary support to the dollar, potentially interrupting the downtrend in USD/JPY.
  2. U.S. Personal Consumption Expenditures (PCE) and Core Inflation Data (Friday): These data points are critical as they are closely watched by the Federal Reserve to gauge inflation trends. A strong reading could reinforce expectations for a rate cut in September.
  3. Japan’s Core Inflation Data (Friday): Higher-than-expected inflation could support the yen, increasing pressure on the USD/JPY pair.
  4. Preliminary EU Inflation (Friday): The European Union’s inflation figures will provide insights into global inflation trends and could influence risk sentiment, indirectly impacting the yen’s safe-haven appeal.

Conclusion

USD/JPY continues to trade within a bearish channel, reflecting the ongoing weakness in the U.S. dollar amidst shifting monetary policy expectations. The technical outlook remains negative, with oscillators and moving averages pointing to further downside potential. However, upcoming economic data releases and central bank commentary could introduce volatility, providing traders with important signals regarding the future direction of the pair.

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