USDJPY flat trend likely to be replaced by another growth wave

Following a volatility spike in early August, the USDJPY currency pair shifted to a sideways movement, as dollar buyers lack the momentum to consolidate above 150, and sellers are unable to break below the 146.5 support level. However, the medium-term uptrend from the April low, which remains important, and the 50-day simple moving average (SMA50), now aligned with 146.50, reinforce the potential for further price appreciation.

A minor pullback in USDJPY during Tuesday’s and Wednesday’s trading sessions pushed the RSI indicator closer to oversold territory. A subsequent upward reversal from these levels would signal the start of another growth wave. Last week’s high of 148.5 could be the first target of this movement. If the level is breached, the bulls might retest the SMA200 and 149.4, which coincides with the 50% Fibonacci retracement of the three-month downtrend in early 2025.

The minutes of the Fed’s July 30 meeting, released yesterday, also contributed to the dollar’s growth. The document revealed that most Fed officials did not share a more dovish view of Michelle Bowman and Christopher Waller due to fears of an inflation surge fueled by US import duties. This stance significantly diminishes the likelihood of near-term interest rate cuts.

Meanwhile, a new Reuters survey suggests over a 60% probability of rate hikes by the Bank of Japan (BoJ) in the fourth quarter. However, the news agency’s analysts consider the risks of this scenario to be underestimated. Key headwinds include the potential impact of Donald Trump’s 15% tariffs on the Japanese economy and the political uncertainty after the ruling coalition's defeat in July's parliamentary elections. The latter could lead to opposition-promoted fiscal stimulus, increasing spending and cutting taxes, thereby making Japan’s economic outlook less stable.

Consider the following trading strategy:

Buy USDJPY at the current price. Take profit 1: 148.5. Take profit 2: 149.4. Stop loss: 146.5.