Wednesday, July 24, 2024
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USD/JPY Price Analysis: Yen has no time to rest amid interest rate differential

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  • Japan revised down its first-quarter GDP figures, showing the economy shrank more than reported.
  • Rising U.S. Treasury yields weighed on the yen.
  • Investors are awaiting a speech from Fed Chairman Powell.

Price analysis of USD/JPY is showing a strong uptrend as the Yen continues to weaken due to the interest rate differential between Japan and the U.S. At the same time, economic data from Japan indicates that there is a slight chance that the Bank of Japan will raise interest rates at its next policy meeting.

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The dollar continued to rise against the yen on Tuesday. Markets focused on the widening interest rate differential between Japan and the U.S. Notably, data released by Japan on Monday showed the country revised down its first-quarter GDP figures, showing its economy shrank more than reported. The economy contracted at an annualized rate of 2.9%, larger than the reported 1.8% decline.

These new figures complicate the outlook for interest rate hikes in Japan. The fragile economy could be further weakened by rising borrowing costs. But the interest rate differential between Japan and the U.S. remains large, which would hit the yen if the Bank of Japan continues to postpone rate hikes.

At the same time, rising U.S. Treasury yields weighed on the yen. Yields rose sharply in yesterday’s trading, boosting the dollar as markets priced in a possible Trump victory after he finished ahead of Biden in last week’s debate. A Trump presidency would likely lead to higher inflation, which would lead to a stronger dollar.

Meanwhile, investors are awaiting a speech from Fed Chairman Powell later today for clues on the outlook for rate cuts, and a cautious tone could send the dollar higher.

Major events for USD/JPY today

  • Speech by Fed Chairman Powell
  • US JOLTS Job Information

USD/JPY technical price analysis: Bulls weaken as they approach the 162.01 level

USD/JPY 4-hour chart

On the technical front, USD/JPY is rapidly approaching the 162.01 level. The price is well above the 30-day SMA and in a sharp bullish trend. At the same time, the RSI is trading near the overbought territory, supporting the bullish momentum.

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However, the price is making higher highs despite making lower highs. This indicates a bearish divergence due to weakening bullish momentum. Hence, there are high chances that the price will reverse soon. If it does, it may either retest the 30-SMA or fall below the support level at 160.00.

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