US Dollar Forecast: USD/JPY Gives Back Post-US Election Rally

US Dollar Outlook: USD/JPY

USD/JPY trades to a fresh monthly low (150.46) as it gives back the advance following the US election, and the exchange rate may fall towards the October low (142.97) as it carves a series of lower highs and lows.

US Dollar Forecast: USD/JPY Gives Back Post-US Election Rally

Keep in mind, the decline from the monthly high (156.75) kept the Relative Strength Index (RSI) out of overbought territory, and a further depreciation in the exchange rate may continue to curb the threat of a currency intervention as the Bank of Japan (BoJ) pledges to support the economy.

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Meanwhile, the Federal Reserve appears to be on track to further unwind its restrictive policy as the minutes from the November meeting reveals that ‘in discussing the outlook for monetary policy, participants anticipated that if the data came in about as expected, with inflation continuing to move down sustainably to 2 percent and the economy remaining near maximum employment, it would likely be appropriate to move gradually toward a more neutral stance of policy over time.’

As a result, the US Dollar may face headwinds ahead of the next Fed rate decision on December 18 as Chairman Jerome Powell and Co. pursue a neutral stance, but the central bank may come under pressure to unwind its restrictive policy at a slower pace as the US Personal Consumption Expenditure (PCE) Price Index warns of sticky inflation.

With that said, USD/JPY may continue to trade to fresh monthly lows amid speculation for a Fed rate-cut in December, but the exchange rate may attempt to retrace the decline from the monthly high (156.75) should the bearish price series unravel.

USD/JPY Price Chart – Daily

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

• USD/JPY stages a three-days selloff for the first time since September, with a break/close below the 148.70 (38.2% Fibonacci retracement) to 150.30 (61.8% Fibonacci extension) zone opening up the 144.60 (50% Fibonacci retracement) to 145.90 (50% Fibonacci extension) region.
• Failure to defend the October low (142.97) may push USD/JPY towards the 140.50 (61.8% Fibonacci retracement) to 141.50 (38.2% Fibonacci extension) area, but lack of momentum to close below the 148.70 (38.2% Fibonacci retracement) to 150.30 (61.8% Fibonacci extension) zone may curb the bearish price series.
• Need a move back above 153.80 (23.6% Fibonacci retracement) to bring 156.50 (78.6% Fibonacci extension) back on the radar, with a breach above the monthly high (156.75) raising the scope for a move towards the 1990 high (160.40).

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--- Written by David Song, Senior Strategist

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