Chapter 44  07/24 USDJPY: Short-Term Bears Eager to Return, Emphasizing Trend-Following Trading

Summary: USDJPY encounters strong resistance near 142.00, leading to significant retracement with a potential decline towards the 138.00 range. The flat slope of the moving averages indicates a lack of stable upward momentum, further emphasized by the negative reading of the daily MACD.


From a fundamental perspective, USDJPY is trading in the latter part of two relatively busy periods in the markets. On Thursday, Japan's year-on-year Consumer Price Index (CPI) for June grew by 3.3%, falling short of the expected 3.5%. However, the Consumer Price Index excluding food and energy, as well as the Consumer Price Index excluding fresh food, both met predictions, changing by 4.2% and 3.3% year-on-year, respectively. Earlier this week, Japan's June import and export data came in below expectations at -11.3% and 2.2% changes, with variations of -12.9% and 1.5%, respectively.

Meanwhile, in the U.S., retail sales for June increased by 0.2% month-on-month, below the expected 0.5% change. Retail sales, excluding automobiles, also fell short at 0.2% change compared to the predicted 0.3%, while the retail sales control group saw growth of 0.6%, exceeding the forecasted -0.3% change. On Thursday, initial jobless claims for the week ending July 14 stood at 228,000, surpassing the expected 245,000, while the previous period's continuing jobless claims were 1,754,000, lower than the expected 1,729,000.

The Bank of Japan is scheduled to hold a rate decision this Friday. Given the recent strength of the yen against other major G10 currencies and Asian currencies last Tuesday, there may be some position adjustments. The likelihood of the Bank of Japan adjusting its policies during the meeting is estimated at 30%. With the Fed having reached terminal rates, it provides a favorable opportunity for the Bank of Japan to adjust its yield curve control policy without causing significant market reactions.

07/24 USDJPY: Short-Term Bears Eager to Return, Emphasizing Trend-Following Trading-Pic no.1

Technical Analysis

USDJPY started the new week with a slight decline, giving back some of Friday's strong gains. During the New York session, the spot price remained defensive, currently trading below $141.00, with a cumulative decline of about 0.50% for the day.

From a technical perspective, USDJPY is still trading within an ascending channel in the 4-hour chart, indicating that the market sentiment remains biased towards the short-term bullish side. Therefore, the short-term target for the bulls is to expand the gains to around $142.40 or the higher range of $142.98.

However, in the daily chart, the momentum of USDJPY seems to be close to exhaustion after the recent rebound. This suggests that the bulls' attempt to regain control of the long-term dominance in the currency pair has stalled. The flat slope of the moving averages and the negative reading of the daily MACD might put significant pressure on further upside momentum for the bulls.

Meanwhile, in the 4-hour chart, the potential formation of a death cross further reflects this sentiment. If the bears quickly return and fail to break below the upward support line near the previous rally point of $138.90, we may set the bullish rebound target around $148.25. On the other hand, the bears' long-term profit target would be around $138.33 or even lower around $134.71.

Overall, the speed of the price rebound may be a critical catalyst for the near-term structural evolution. The strength of key support or resistance levels will determine the direction chosen. In terms of trading strategy, it is recommended to focus on trend trading.

Trading Recommendations

Trading Direction: Short

Entry Price: 141.00

Target Price: 138.15

Stop Loss: 143.40

Valid Until: 2023-08-07 23:55:00

Support: 140.51, 139.71, 138.65

Resistance: 142.00, 142.40, 142.98

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