Daily Price Outlook
During the European trading session, the USD/JPY currency pair has seen a notable uptrend, propelled by persistent JPY weakness and a series of factors, including the Federal Reserve's hawkish stance and growing optimism surrounding a potential US-China trade deal.
At the time of writing, the pair hit the 145.00, driven by the ongoing outperformance of the US Dollar, which has remained supported by the Fed’s decision to pause on rate cuts.
JPY Weakness Fueled by Geopolitical Optimism and Safe-Haven Shift
On the JPY front, the Japanese Yen's decline can be largely attributed to market optimism around US President Donald Trump's comments regarding an upcoming trade deal, which is expected to boost the US-China trade talks scheduled for later in the week.
Trump’s remarks have helped shift risk sentiment, undermining the demand for traditional safe-haven assets such as the Yen. Investors are increasingly optimistic about the potential for progress in global trade, which has translated into a weaker Yen for the second consecutive day.
Despite Trump’s cautious stance on tariff talks, his trade comments have boosted market sentiment, increasing confidence in riskier assets and putting pressure on the Yen.
This supports the ongoing strength of the USD, as the market expects the Fed to keep rates steady and avoid cuts in the near future.
Fed’s Hawkish Pause Adds to USD Strength Amid JPY Weakness
On the US front, the broad-based US dollar remains strong due to the Federal Reserve's recent hawkish signals.
The Fed’s decision to keep interest rates steady without hinting at cuts has supported the USD. Despite growing uncertainty over Trump’s trade policies, the Fed's cautious approach has helped the dollar stay strong, even amid geopolitical risks.
Hence, the Fed's hawkish pause comes as trade tariff concerns grow, with Jerome Powell acknowledging the uncertainty around trade policies.
However, Powell emphasized that the current approach is the best given the unclear global trade situation.
Therefore, this mix of strong domestic policy and optimism about trade talks has helped the USD continue its rally against the JPY.
Geopolitical Tensions and Market Uncertainty Limit JPY Losses
On the flip side, the ongoing concerns over geopolitical tensions have tempered the extent of JPY's losses. Russia and Ukraine's ongoing conflict, along with heightened instability in the Middle East, including Israel's recent military actions, have kept investors wary.
These geopolitical risks, combined with Trump’s uncertain tariff stance, have created an environment of volatility, limiting JPY’s slide and keeping the market in a state of cautious optimism.
Therefore, the Bank of Japan (BoJ) has also weighed in on the situation. The BoJ’s minutes from its March meeting indicated that the central bank remains ready to tighten policy further if inflation trends hold.
However, the BoJ expressed caution due to the global volatility stemming from US tariff policies. BoJ Governor Kazuo Ueda’s remarks on the rising food prices and the potential impact on inflation further suggest that the bank may not abandon its rate hike plans, which could help mitigate deeper JPY losses.
Looking forward, investors are closely watching US economic data, like the Weekly Initial Jobless Claims report, to gauge the economy.
The mix of the Fed's hawkish pause, trade deal optimism, and geopolitical uncertainty is likely to keep causing fluctuations in the USD/JPY pair. The US Dollar should stay strong, while the Japanese Yen remains sensitive to shifts in market sentiment.
USD/JPY – Technical Analysis
USD/JPY is trading around 144.389, maintaining its upward momentum within a well-defined ascending channel on the 1-hour chart. The pair has recently cleared the 50-period Simple Moving Average (SMA) at 143.242, reinforcing the bullish structure.
This move above the 50 SMA indicates strong buying interest, as this level often acts as a dynamic support in trending markets.
From a price action perspective, the recent candles have formed a sequence of higher lows, confirming the bullish trend.
The sharp upward move from the 143.000 region has been supported by a bullish engulfing candle, which provided the initial breakout above the 143.242 support.
This bullish momentum has carried the price towards the critical resistance at 144.640, the upper boundary of the ascending channel.
A successful break above this level could open the door to the next major resistance at 145.110, aligning with the take profit target.
Momentum indicators further support the bullish outlook. The Relative Strength Index (RSI) has surged to 69.82, indicating strong positive momentum, but without yet entering the overbought territory, suggesting room for further upside.
Additionally, the 50-period SMA remains a key support level, currently holding the bullish structure intact.
However, a failure to break above 144.640 could lead to a pullback towards the 144.002 mid-channel support or even the critical 143.424 stop loss level, where buyers are expected to re-enter aggressively.
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