USD/JPY analysis: Bullish breakout still on cards as Japan FX intervention looms

• USD/JPY analysis: US dollar drops against most currencies expect JPY
• When will Japan intervene?
• USD/JPY technical analysis: Rates gearing up for a potential breakout

USD/JPY analysis: US dollar drops against most currencies expect JPY

The USD/JPY held steady, while the US dollar weakened against all major currencies today, hurt by weaker data and Powell’s re-iteration that recent inflation data did not “materially change” the overall picture. Today’s weaker data included jobless claims, which came in at 221K vs. 213K eyed, while yesterday’s publication of the ISM Services PMI was both weaker and far less inflationary than expected, in contrast to the ISM Manufacturing PMI that was published on Monday. FX markets are now looking forward to the release of US jobs report on Friday, with a headline print of 212K expected compared to 275K in the previous month. But as inflation data is now far more important than anything else, the focus will be on the average hour earnings index of the employment report. This is expected to show a 0.3% month-over-month rise, following last month’s 0.1% increase.

USD/JPY analysis video and insights on metals

USD/JPY analysis: When will Japan intervene?

Meanwhile from yen’s side of the equation, the focus remains on whether the Japanese government would intervene in the FX markets and at what levels. Many people think 155.00 is the intervention level. To get there, the USD/JPY will have to climb more than 300 pips from here, which looks like a possibility given the fact that rates are consolidating inside a bullish continuation pattern just below the 142.00 resistance levels. A stronger US jobs report could lift us towards that region.

Former Japanese top FX diplomate Hiroshi Watanabe was at it again this morning. He said that the government is unlikely to intervene unless we see USD/JPY pushing above 155.

As the yen approaches the 152 level, where intervention occurred in 2022, markets are vigilant for potential yen-buying actions by Japanese authorities. That’s why we haven’t seen a big move away from this area, as traders appear unwilling to stand in the way. Yet, there are refusing to budge, with the USD/JPY holding onto its gains while other USD pairs have weakened in recent days. It looks like intervention is currently not happening, which could be because the yen's recent declines have remained within a broader range, unlike the steeper drops observed in 2022.

USD/JPY technical analysis and levels to watch

Source: TradingView.com

Over the past week and a half, the USD/JPY exchange rate has shown little movement. However, there is a clear bullish trend in place, following consecutive monthly increases over the last three months. In March, the USD/JPY briefly surpassed previous two-year highs of 151.90-151.95 region, before making an incremental high at 181.97. Although there was a swift rejection at that level, suggesting a potential top, subsequent downside momentum to confirm a bearish scenario has yet to materialise. As a result, rates remain confined within a narrow consolidation pattern, resembling a bullish ascending triangle formation, just below the 152.00 threshold.

Despite attempts by Japanese officials to dampen the currency pair, the consolidation phase indicates a potential breakout above 152.00, though the possibility of a false breakout or a triple top pattern cannot be completely ruled out yet. Further bearish price action is required to signal a trend reversal at this juncture.

Should the USD/JPY indeed break higher, the next target could be 153.00, followed by 154.00, possibly culminating in the psychologically significant milestone of 155.00, corresponding with the 127.2% Fibonacci extension level traced from the November to December downturn. As mentioned, this level is also touted as a possible intervention zone.

On the downside, support is seen at 150.80, which previously acted as resistance during various points in February before being breached in March. Below this level lies the psychologically crucial 150.00 mark, followed by the 149 handle. A break below 149.00 would represent a notable development from a bearish perspective.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R

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