Chapter 10  07/05 USDJPY: Uptrend Is Still Intact Before Officially Falling below the Triangle Consolidation

Abstract: The USDJPY trading has been flat since the start of this week, trading below 144.50 before the New York session, with an overall decline of 0.1%. We believe that the uptrend of the USDJPY is still intact before it officially falls below the triangle consolidation.


Business activities in Japan continue to expand. The PMI of the Markit service industry in June released on Wednesday dropped from 54.2 to 54.0, which was lower than 55.9 in May, but it still shows that the service industry is still strong.

The strong service industry data is in sharp contrast to the weak manufacturing data on Monday. In June, the manufacturing PMI was 49.8, lower than 50.6 in May.

The poor manufacturing industry has led to five contractions in factory activities this year. The difference between the service industry and the manufacturing industry is not unique to Japan, and we have seen similar trends in most major economies.

The Bank of Japan (BOJ) showed no interest in tightening ultra-loose monetary policy. Kazuo Ueda said that if wage growth rises and high inflation continues, he will consider adopting a more stringent policy. At the same time, Kazuo Ueda has not changed the BOJ's position that inflation, which is still above the BOJ's 2% target, is only temporary.

However, the JPY has been paying the price for the BOJ's policies. As the Federal Reserve continued to raise interest rates while the BOJ remained motionless, the spread between U.S. and Japanese bonds continued to widen, causing the JPY to fall by nearly 9% since April 1, which triggered the verbal intervention of the Ministry of Finance.

In September 2022, the Ministry of Finance of Japan intervened after the JPY fell to 145.00, which shocked the market. As the current JPY is slightly below this level, people are worried that the Ministry of Finance of Japan may intervene in the money market to boost the sluggish JPY. Japanese officials gave no clues, only that all options were still under consideration. If the JPY falls below 145.00 again and moves closer to 150.00, the possibility of further intervention will increase.

The Federal Reserve will release the minutes of its June meeting later today. It is widely expected that next week's meeting will raise interest rates by 25 basis points, and investors will look for some clues about the future interest rate path of the Fed in the minutes of the meeting. Compared with a few months ago, the market is more consistent with the radical stance of the Fed, which was expected to cut interest rates before the end of the year. Now, the market does not expect the Fed to cut interest rates before the beginning of 2024.

07/05 USDJPY: Uptrend Is Still Intact Before Officially Falling below the Triangle Consolidation-Pic no.1

Technical Analysis

The USDJPY has been consolidating in the past week's trading, and the stagnation of the rise may mean that the latest trend may be coming to an end; However, considering that there is still some room for growth, and triangular consolidation still plays a good supporting role; We believe that the bulls will completely reverse the downward trend after completing the top-bottom conversion to the target range.

Momentum indicators are showing some signs of rally exhaustion. Stochastic oscillators continue to move in the overbought zone, thus confirming increased bearish pressure. Meanwhile, the Average Directional Movement Index (ADX) has topped out and is now consolidating. The continuation of this trend, or even a decline in the ADX, would be seen as a signal of the end of the bullish trend.

However, in the Price Action, energy transitions can cancel each other out. If the price fails to fall below the key support, momentum may still lift further as energy transitions and accumulates.

Immediate resistance to the upside is currently located around the level connecting the bearish trend line at 144.65. The second major resistance is located around 144.90, above which the upside momentum may be regained. And the next major resistance level is around the 145.20 area. A clear break of the 145.20 resistance level could push the USDJPY further higher to the 145.80 level.

In case of a new decline, the USDJPY may find buying near the 144.00 level. The next support is located near the 143.80 area, below which there is a risk of falling toward the 143.30 level.

Overall, the uptrend of the USDJPY remains the path of least resistance, but the bears may rely on the downward divergence of momentum indicators for some time to bring the price back to the 139.96 range. However, our position will be firm. It is recommended to buy the dips.

Trading Recommendations

Trading direction: Long

Entry price: 144.20

Target price: 146.60

Stop loss: 142.20

Deadline: 2023-07-19 23:55:00

Support: 144.13, 143.86, 143.27

Resistance: 145.00, 145.39, 146.60

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