USD/JPY Sellers Target Key Support Amid Dollar Weakness

Fundamental Analysis and Market Sentiment

The U.S. dollar is trading near its lowest level in a year against major currencies like the euro and the British pound, reflecting the Federal Reserve’s more dovish stance and signs of softening in the U.S. labor market. This shift has bolstered expectations of a rate cut, contributing to downward pressure on the dollar. In the context of USD/JPY, the weakening dollar, coupled with a decline in U.S. Treasury yields during the Asian session, has emboldened sellers to challenge the 145 yen level, with the potential for further declines if this support is breached.

Market sentiment remains cautious, as investors digest the implications of recent economic data and await further developments from the Federal Reserve. The ongoing divergence in monetary policies between the U.S. and Japan continues to shape the dynamics of the USD/JPY pair, with a stronger yen gaining favor amid risk-off environments.

Technical Analysis and Oscillators Confirmation

On the daily chart, USD/JPY remains firmly in a downtrend, having recently broken below the key support level of 146.068, which has allowed sellers to push the price down to the critical 145.164 level. This support coincides with the 127.2% Fibonacci extension of the previous corrective upward movement, providing a temporary floor for the pair. If this level fails to hold, the next downside targets are at 143.804 and 142.743, which align with further Fibonacci retracement levels.

Oscillators Confirmation:

• RSI: The Relative Strength Index (RSI) is currently in bearish territory, indicating that selling pressure remains strong, with room for further declines.
• MACD: The Moving Average Convergence Divergence (MACD) is showing mixed signals, with a slight downward bias, suggesting that the momentum is still in favor of the sellers but with some potential for consolidation.
• Moving Averages: The price is trading below both the short-term 34-day and longer-term moving averages, reinforcing the bearish outlook as these moving averages act as dynamic resistance levels.

Alternative Scenario

If buyers manage to stage a recovery and hold the 145.164 support level, they would need to push the price back above the 146.068 resistance level to negate the current bearish trend. A sustained move above this level would then target 147.338 and potentially the key resistance at 149.393, where a breakout would signal a trend reversal and a move back into bullish territory above the 34-day moving average.

Key Levels

Resistance Levels:

• Resistance 3: 149.393
• Resistance 2: 147.338
• Resistance 1: 146.068

Current Price (at the time of analysis): 145.313

Support Levels:

• Support 1: 145.164
• Support 2: 143.804
• Support 3: 142.743

Key Events to Watch

The market will be closely monitoring the release of Japan’s Services PMI for July, which showed better-than-expected results, supporting the yen. Additionally, investors are awaiting several key U.S. economic reports, including initial jobless claims, preliminary PMI data, housing market figures, and the Federal Reserve’s balance sheet. Each of these reports has the potential to significantly impact the dollar and, by extension, the USD/JPY pair.

Conclusion

USD/JPY remains under significant bearish pressure as the dollar continues to weaken against the yen. The pair is currently testing a critical support level at 145.164, and a break below this could lead to further declines towards 143.804 and 142.743. However, if buyers can defend this level and push the price higher, a move above 146.068 could signal the beginning of a recovery. The market’s focus will be on upcoming U.S. economic data and Federal Reserve communications, which could drive significant volatility in the coming sessions.

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