The USDJPY currency pair reached the growth targets of the previous forecast. At the end of the last week, there even was an attempt to break down the resistance that was formed in December 2022.
Risks of a further tightening of Fed policy will continue to strengthen the dollar.
Earlier, there was almost unanimous opinion about the pause in the cycle of rate hikes on the market in June. However, several speakers from the Fed opposed the idea of a pause next month. Since then, markets have begun to review their expectations, including canceling forecasts of interest rate cuts at the end of 2023.
At the moment, the dollar is supported by the fact that for many investors it is a safe haven asset in an uncertain situation with the debt ceiling. However, according to experts, this support will be short-term. Additionally, the cycle of monetary tightening in the U.S. is close to ending.
Declining bond yields in the U.S. and changes in trading conditions in Europe will prevent the dollar from rising in the second half of 2023, analysts said.
Most likely, closer to 2024, the dollar will weaken on the background of the Federal Reserve's policy easing. However, even after the situation with the national debt is resolved, the dollar may continue rising because of the high level of borrowing by the U.S. Treasury. After the new limit of the U.S. national debt is confirmed, the country will need to borrow money on the market urgently. Since now it is the cycle of monetary policy tightening, it will not be easy to borrow, so the yields of government bonds will rise. The growth of coupon yields will lead to an inflow of dollar liquidity. This will lead to an increase of the dollar against all currencies, including the Japanese yen.
According to the technical analysis, the currency pair USDJPY renewed the previous local maximum. The price pullback looks uncertain, so there is a high probability that the movement will continue. The area of 1.618 Fibonacci from the last correction of the currency pair can be considered as the growth target. Next to this level there is a round price of 140, which will be taken as a growth target. Stop-loss can be set at a decrease to 136.2. There is the 0.618 Fibonacci level.
Growth of the USDJPY currency pair:
Take profit – 140.0
Stop-loss – 136.2
This content is for informational purposes only and is not intended to be investing advice.
