USDJPY Outlook: Bearish Pressures Amplified

Key Events

ADP Non-Farm Employment Change
Unemployment Claims
US ISM Services PMI Non-Farm Payrolls (Friday)
FOMC Member Remarks (Friday)

The USDJPY chart is hovering near its 2024 lows, with bearish risks amplified by increasing expectations for a 50bp rate cut in the US, coupled with a potential rate hike by the BOJ in September.

Recent data from the JOLTS Job Openings indicator, which provides an early glimpse into the labor market and economic activity, recorded a drop just above April 2021 lows. This has heightened concerns about the cooling labor market, especially as monetary policy effects typically lag. The upcoming Non-Farm Payroll reports on Friday are expected to clarify whether the US economy is headed for a soft or hard landing as the Fed prepares to initiate its easing cycle.

Following the Fed’s decision on September 18th, the BOJ will hold its policy meeting, amid growing concerns of another rate hike due to rising inflation in Japan. This potential rate hike, occurring alongside global monetary easing policies, heightens the risk of a significant market impact.

Technical Outlook

USDJPY Outlook: DXY – 3-Day Time Frame – Log Scale

Source: Tradingview

The US Dollar Index is navigating critical levels that could determine whether the trend favors a bullish reversal or continues its bearish trajectory. A bullish bias could emerge with a close back above the 102 barrier and inside the primary consolidation range.

Conversely, a close below the December 2023 lows would confirm a drop towards the July 2023 lows. The upcoming ISM Services PMI and US employment indicators are poised to play a decisive role in determining the trend direction, which will significantly impact the broader market.

USDJPY Outlook: USDJPY – 3 Day Time Frame – Log Scale

Source: Tradingview

In August, the USDJPY chart traced a contracting consolidation pattern, marked by lower highs and higher lows, printing the 2024 low at 141.70, aligned with the mid-level of the duplicated channel from the primary 2024 trend.

Current price action is showing signs of weakness against the yen, but final confirmation of a bearish trend requires a break below the 140-barrier. Should this occur, the bearish scenario points towards the 137 level, with risks of a sharper decline towards the 130-128 zone. On the upside, levels at 147.20 and 149.20 present short-term resistance for bullish corrections, while 152 and 154 could serve as longer-term resistance levels.

Key levels are being closely watched for a breakout, likely in alignment with upcoming monetary policy decisions. As the saying goes, "Don’t fight the Fed."

--- Written by Razan Hilal, CMT – on X: @Rh_waves

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