USDJPY Technical Analysis

The USDJPY pair craters as Governor Ueda hints to rate hikes in 2024. What’s next?

USD

The Fed left interest rates unchanged as expected at the last meeting with basically no change to the statement.
Fed Chair Powell stressed once again that they are proceeding carefully as the full effects of policy tightening have yet to be felt.
The US Core PCE last week came in line with forecasts with the disinflationary progress continuing steady.
The labour market continues to show weakness as Continuing Claims are now rising at a fast pace with the last NFP report missing across the board. This week’s Job Openings and ADP came below forecasts. although the Jobless Claims were better than expected.
The ISM Manufacturing PMI last week missed expectations falling further into contraction, while the ISM Services PMI beat forecasts holding on in expansion.
The hawkish Fed members recently shifted their stance to a more neutral position.
The market expects the Fed to start cutting rates as soon as Q1 2024.

JPY

The BoJ kept its monetary policy basically unchanged at the last meeting but formally widened the YCC to 1% on the 10-year JGBs stating that it will be a reference cap.
Governor Ueda yesterday hinted to rate hikes coming in 2024 and caused an insane bid in the Yen.
The recent Japanese CPIshowed that inflationary pressures are easing although they remain well above the BoJ’s 2% target.
The latest Unemployment Rate remained unchanged near cycle lows.
The Japanese Manufacturing PMI fell further into contraction, but the Services PMI ticked higher remaining in expansion.
The Japanese wage data today beat expectations once again and as a reminder the BoJ is focusing on wage growth to decide whether to tweak its monetary policy.
The market expects the BoJ to hike rates in Q2 2024.

USDJPY Technical Analysis – Daily Timeframe

On the daily chart, we can see that USDJPY broke below the rising channel and sold off following the comments from BoJ Governor Ueda where he hinted to rate hikes coming in 2024. The pair eventually extended the drop once the key 145.00 handle got broken as the severity of the selloff might have triggered some momentum based algo reaction. The bias for the pair remains bearish as not only the fundamentals keep pointing to more downside going forward but the technicals are now aligned with the macro picture.

USDJPY Technical Analysis – 4 hour Timeframe

On the 4 hour chart, we can see that as it usually happens after such mini flash crashes, the pair erased some of the drop and it’s now pulling back into the key 145.00 handle where we can also find the 61.8% Fibonacci retracement level for confluence. This is where we can expect the sellers to step in with a defined risk above the level to position for another drop into new lows. If the price breaks higher though, the next resistance where the sellers are likely to pile in will be the trendline around the 146.50 level.

USDJPY Technical Analysis – 1 hour Timeframe

On the 1 hour chart, we can see more closely the bearish setup with the two key resistance zones marked on the chart. For the buyers things are more complicated as there’s no clear support level in sight and catching such falling knifes is always extremely hard.