USD/JPY Halts Three-Day Selloff to Keep RSI Above Oversold Zone

US Dollar Outlook: USD/JPY

USD/JPY halts a three-day selloff to keep the Relative Strength Index (RSI) above 30, and the oscillator may show the bearish momentum abating as it appears to be reversing ahead of oversold territory.

USD/JPY Halts Three-Day Selloff to Keep RSI Above Oversold Zone

In turn, USD/JPY may defend the December low (148.65) as it rebounds from a fresh monthly low (148.85), and the exchange rate may further retrace the decline from earlier this month as the Federal Reserve insists that ‘we do not need to be in a hurry to adjust our policy stance.’

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However, the rebound in USD/JPY may turn out to be temporary as it extends the series of lower highs and lows from last week, and developments coming out of the US may sway the exchange rate as the Personal Consumption Expenditure (PCE) Price Index is anticipated to show slowing inflation.

US Economic Calendar

The core PCE, the Fed’s preferred gauge for inflation, is seen narrowing to 2.6% in January from 2.8% per annum the month prior, and USD/JPY may struggle to hold its ground ahead of the next Federal Open Market Committee (FOMC) meeting in March as speculation for lower US interest rates is likely to influence the carry trade.

At the same time, a higher-than-expected PCE print may push the Fed to further combat inflation as the US economy shows little signs of a recession, and USD/JPY may attempt to retrace the decline from earlier this month should the RSI continue to hold above oversold territory.

With that said, USD/JPY may snap the recent series of lower highs and lows should it extend the rebound from the monthly low (148.85), but failure to defend the December low (148.65) may push the exchange rate towards the October low (142.97).

USD/JPY Price Chart – Daily

Chart Prepared by David Song, Senior Strategist; USD/JPY on TradingView

• USD/JPY extends the recent series of lower highs and lows to register a fresh monthly low (148.85), with a close below the 148.70 (38.2% Fibonacci retracement) to 150.30 (61.8% Fibonacci extension) zone raising the scope for a move towards the 144.60 (50% Fibonacci retracement) to 145.90 (50% Fibonacci extension) region.
• Next area of interest comes in around the October low (142.97), but USD/JPY may track the flattening slope in the 50-Day SMA (154.97) if it continues to hold above the December low (148.65).
• Need a move back above 151.95 (2022 high) to bring 153.80 (23.6% Fibonacci retracement) on the radar, with the next area of interest coming in around the monthly high (155.89).

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--- Written by David Song, Senior Strategist

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