Selling USDJPY during rebound with 142.430 target

USDJPY has rallied in recent days after bouncing from the 143.380 support level. Thursday's trading opened at 143.639, with the greenback strengthening primarily due to the US-Vietnam trade agreement, which enhanced the dollar's appeal to investors. Meanwhile, the yen weakened following disappointing Japanese export data and declining manufacturing sector activity.

However, fundamental factors suggest waning dollar confidence. Markets are responding to weak US economic indicators, including slowing industrial production and rising unemployment. These data points strengthen expectations of Federal Reserve (Fed) monetary easing. The prospect of lower interest rates diminishes the dollar's appeal as a high-yield currency, potentially leading to longer-term weakness. Conversely, the Bank of Japan plans to continue its policy of raising borrowing costs, despite global trade tensions stemming from Washington's tariff measures. This divergence in central bank policies could exert downward pressure on USDJPY.

The Japanese economy, despite current challenges, shows signs of stabilization thanks to government measures supporting domestic demand. This sets the stage for yen appreciation, particularly if the Bank of Japan maintains its gradual rate-hiking trajectory. Improving domestic economic conditions could boost investor confidence in the yen, supporting its strength against the dollar.

Technical analysis of USDJPY on the daily timeframe shows a July 2 bounce from the 143.380 support level. The 20-period Exponential Moving Average (EMA) sits below the 50-period EMA, with both maintaining downward trajectories, suggesting continued price decline. While the Stochastic Oscillator has begun rising from non-oversold levels, confirming the bounce and indicating slower decline, this suggests a short-term recovery within the prevailing downtrend.

Current recommendation:

Selling at the current price during a rebound. Take profit – 142.430. Stop loss – 144.50.