USD/JPY Analysis: Technical Tuesday – August 6, 2024

USD/JPY and Yen Crosses Remain in Sharp Focus

The spotlight is on the USD/JPY and other yen crosses right now, with a particular focus on the ongoing unwind of carry trades that continues to make waves across financial markets. This USD/JPY analysis follows last week’s hawkish Bank of Japan meeting and recent US economic data that showed some signs of weakness, raising recession alarm bells. The stronger services PMI data helped to alleviate those concerns somewhat, but markets remain under pressure, nonetheless.

USD/JPY technical analysis video

USD/JPY Reaches Extreme Oversold Levels

The USD/JPY is hitting extreme oversold levels following the big drop. The daily RSI indicator moved to below 15, marking a level that’s rarely seen. This suggests we might be due for a bounce and indeed we saw a bit of recovery on Monday. The USD/JPY surged from about 141.69 to eventually reach 146.37 overnight, which wiped out the losses from Monday before the selling pressure resumed at the Asian open. We’re now hovering in the middle of Monday’s trading range.

USD/JPY Analysis: Key Levels to Watch

Source: TradingView.com

The big question is whether we’ll continue to see a downward trend or if the USD/JPY will start climbing again. There are a few key levels to watch:

Resistance: The area round 146.40 to 146.50 is crucial. This zone had previously provided support and has now turned into resistance. If this resistance breaks, we might see a relief bounce towards a more significant resistance zone around 151.00, where the 200-day moving average and other technical indicators come into play.
Tough ask: After the dramatic sell-off triggered by the Bank of Japan’s policy decision last week, we may not see too much of a recovery. Instead, a potential recovery might face stiff resistance near the broken bullish trend line, which had been intact since January 2023, around the 148.50 area. The breach of this trend line was a major bearish signal, so this area could act as strong resistance moving forward.
Support: Keep an eye on the area around 141.80ish. This area marked the start of previous buying pressure at the start of this year, after a prolonged downtrend ended in late 2023. When this level was breached and rates climbed above the 200-day moving average, we saw a solid upward move in the first half of the year, only to face a sharp drop after the mid-way point of the year.

USD/JPY outlook hinges on US data

Moving forward, much will hinge on upcoming US macro pointers, although we don’t have much in the way of scheduled data to work with this week. The ISM Services PMI released yesterday came in slightly stronger than expected, easing recession fears and giving the USD/JPY a bounce while risk assets also showed some recovery from their lows. Nonetheless, the pressure is still on.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the company you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

City Index is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.cityindex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 28.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.