USD/JPY Price Forecast: Will Fib Breakouts Propel Dollar Price Levels Past 160?

Quick overview

USD/JPY holds a strong bullish bias and currently sits at 159.45 as the buyers soak up local resistance levels. The major pair has formed a very constructive setup on the 4H chart that is heavily insulated by expanding transatlantic yield differentials. Although discussions of a Bank of Japan intervention are ongoing, they are being drowned by market fundamentals and technical structure.

Key Drivers for USD/JPY Today

1. Monetary policy divergence: The macroeconomic outlook for the greenback remains fundamentally bullish. Sticky 3.8% US inflation has effectively vaporized near-term interest rate cut expectations. This scenario is a bullish setup under current Fed Chair Kevin Warsh. Conversely, the Bank of Japan remains paralyzed by weak domestic GDP.
2. Large yield differential: Capital flows into the USD in search of higher yields. The Fed and the BoJ have a yield differential of approximately 300 basis points. This gap incentivizes aggressive carry trade strategies with the pair as the market repeatedly crushes any efforts to reverse the uptrend.
3. Ceasefire agreement between Iran and the US: The 8-week old conditional ceasefire between the US and Iran has been carried out so far. This has caused the market to reduce its safe-haven bid across the board as the Strait of Hormuz remains open.

USD/JPY Technical Analysis

The 4H chart shows a highly orderly setup of an impulsive continuation for USD/JPY. The price has formed a technical bottom at its 1.618 Fibonacci extension level of $159.735 as green candles printed in force after a small pullback. Price has been rising along a steep blue uptrend originating from the 155.00 demand area a few weeks ago.

We’ve also noticed long upper shadows on some recent bars as the market tests the 159.73 to 160.70 resistance zone. Higher daily volume shows heavy buying on pullbacks from the market participants. The RSI is at 63.37, signaling robust upside momentum with extensive open runway before entering overbought extremes.

• Resistance levels: $159.735 (1.618 Fibonacci Extension), $160.70 (Previous high), and $160.846 (2.0 Fibonacci Extension).
• Support levels: $158.55 to $158.73 (consolidation zone), $157.00 and $155.00 (previous demand base).

Trade Setup for USD/JPY

A short-term momentum trade on a breakout above $159.735 offers the best risk-reward ratio as it sets us up for higher targets.

• Order type: Buy Stop execution on a close above $159.735
• Price target 1: $160.70
• Price target 2: $160.846
• Stop loss: $158.55 (below current consolidation level)

Bottom line

Our technical bias for USD/JPY in the short term is bullish as the pair is forming a base under $160.00 to test higher targets in the coming days. The possibility of a second intervention by the Japanese Ministry of Finance remains a risk that market participants need to be cautious about.

Intervention in FX markets is just a short term solution and won’t fix fundamental economic and policy divergences between two nations.

The retail sales data due from the US should drive some price movement in the coming sessions. A buy on pullbacks to retest a trendline could make for an interesting play for a risk reward play.

ABOUT THE AUTHOR See More

Arslan Butt

Lead Markets Analyst – Multi-Asset (FX, Commodities, Crypto)

Arslan Butt serves as the Lead Commodities and Indices Analyst, bringing a wealth of expertise to the field. With an MBA in Behavioral Finance and active progress towards a Ph.D., Arslan possesses a deep understanding of market dynamics. His professional journey includes a significant role as a senior analyst at a leading brokerage firm, complementing his extensive experience as a market analyst and day trader. Adept in educating others, Arslan has a commendable track record as an instructor and public speaker. His incisive analyses, particularly within the realms of cryptocurrency and forex markets, are showcased across esteemed financial publications such as ForexCrunch, InsideBitcoins, and EconomyWatch, solidifying his reputation in the financial community.

XRP Price Forecast: Will Key Support Failings Sink XRP Price Levels Under $1.25?

3 h ago

Save

EUR/USD Price Forecast: Will Channel Breakdowns Sink Euro Price Levels Under $1.1560?

4 h ago

Save

Silver Price Forecast: Will Rising Channel Support Ignite a Move Back Over $76?

4 h ago

Save