The USD/JPY currency pair has experienced a slight rebound, climbing to 145.95 on Wednesday morning. This upward movement represents a recovery from its two-week low, however, it is still too early to declare a significant reversal in the overall trend. The prevailing economic climate continues to influence market sentiment, prompting investors to adopt a cautious approach.
Market participants are keenly awaiting the release of crucial US employment market data for August, scheduled for later this week. This data is expected to have a substantial impact on the Federal Reserve’s upcoming policy decisions. The Federal Reserve, the central bank of the United States, plays a vital role in setting interest rates and managing the money supply. Its decisions often influence the value of the US dollar and consequently, the USD/JPY exchange rate.
Meanwhile, on the Japanese front, the Bank of Japan (BoJ) has maintained its current monetary policy stance. However, the BoJ has hinted at potential adjustments to its policy if economic projections align with actual outcomes. This cautious but responsive approach suggests the BoJ’s commitment to stability in the face of evolving economic indicators. Notably, the possibility of a December interest rate hike has been raised, signifying the BoJ’s flexibility in responding to economic developments.
Recent economic data from Japan has shown a slight improvement, with the manufacturing Purchasing Managers’ Index (PMI) rising to 49.8 from 49.5. This increase brings the index closer to the critical threshold of 50.0, which marks the line between contraction and expansion in the manufacturing sector. This positive development suggests a potential stabilization in the manufacturing sector, which could influence the USD/JPY forecast as market participants assess the implications for monetary policy and economic growth in Japan.
USD/JPY Technical Analysis
The four-hour chart (H4) shows a recent corrective move upwards to 147.20, followed by a downward wave targeting 144.11. If this level is reached, a corrective movement to 145.66 is likely, testing this level from below. A further decline to 144.11 is possible, with a potential continuation downwards to 141.80 and even further to 137.77. This bearish outlook is supported by the Moving Average Convergence Divergence (MACD) indicator, where the signal line is positioned above zero but trending downwards sharply.
On the one-hour chart (H1), USD/JPY executed a downward impulse to 145.66 and has since been consolidating around this level. A break below the consolidation range could trigger the continuation of the downward trend towards 144.11. After reaching this target, a retest of 145.66 may be anticipated. This bearish scenario aligns with the Stochastic oscillator’s readings, where the signal line is just above 50 but indicates a downward movement.
