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

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 71% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.