- USDJPY outlook turned bullish after Japanese bond market intervention and easing U.S.-EU trade tensions lifted the pair.
- A bullish reversal pattern formed, hinting at a short-term bottom, but the broader trend remains bearish.
- Market focus now turns to U.S. data for further dollar strength and to Japanese yields for signs of renewed yen support.
The USD/JPY outlook has shown a mild shift in sentiment, stemming from the recent surge in US dollar and yen’s weakness. However, the situation is complex due to a mix of monetary policy divergence and short-term political developments.
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The US dollar regained strong footing after US consumer confidence data marked the best figures in past four years. The delayed tariffs on EU imports until July 09 has also given some life to the dollar. The decision eased the market fears of escalating trade tensions and triggered a broad risk-one sentiment in global markets. Hence, yen being a safe haven asset suffered against the US dollar.
Moreover, the US dollar also found significant support from easing inflation pressure as this could refrain the Fed to act aggressively in cutting rates. The US economic resilience could further support the USD/JPY bulls.
On the other hand, the yen found headwinds despite stronger than expected Japanese inflation. The BoJ Governor Kazuo Ueda warned about a hike in food prices, hinting at a hawkish stance. However, the BoJ is still far from a meaningful tightening policy. The central bank is navigating exit from the easing monetary policy and start tightening while the Federal Reserve is debating when to cut rates. The policy divergence could favor the yen against dollar.
Moreover, the Japanese government announced that it would trim the super-long bonds. The objective was to calm the sharp rise in yields that had previously supported the yen through repatriation. This signals a potential bullish momentum for the USD/JPY.
Key Data for USD/JPY Today
The major event on the day is FOMC meeting minutes that could unfold the potential monetary policy and rate path.
USD/JPY Technical Outlook: Buyers Looking to Break Triangle
The USD/JPY formed a strong bullish reversal signal after finding a bottom at 142.35. It followed a breakout of ascending triangle and resistance at 143.00. The rally paused at 20-day SMA around 144.80.
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If the buyers sustain above the 144.00 level, the price can test 146.00 and potentially aim for 148.32. However, the broad bearish trend initiated from January still remains until the price moves above the 50% Fib level. A drop below 142.00 could invalidate the recent bullish bias and may look for 139.80 ahead of 138.70.
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