USD/JPY Supported by Carry Trade Demand but Faces Key Technical Hurdles
USD/JPY traded higher on Tuesday, gaining 0.2% within a choppy range of 157.26-157.80 during thin liquidity caused by the Japan holiday. The pair benefited from demand for carry trades, with AUD/JPY and NZD/JPY leading the way, rising 0.65% and 0.75%, respectively. A rebound in E-mini futures off early lows also provided support for risk sentiment, aiding USD/JPY’s bid tone despite a softer U.S. dollar.
Technically, USD/JPY remains supported above the rising daily Ichimoku cloud, but the uptrend appears capped for now as the cloud begins to thin in January. Immediate support is at the Tenkan line near 157.05, with more substantial support at the cloud top at 153.37. On the upside, resistance at 158.00-10, which proved resilient in December, remains a critical barrier. Mixed 5-, 10-, and 21-day moving averages, combined with cresting daily momentum studies, suggest indecision, with a close below the Tenkan line or above 158.10 likely to determine the next directional move.
Looking ahead, USD/JPY’s trajectory will hinge on broader risk sentiment and technical levels. Demand for carry trades may continue to support the pair in the near term, but a failure to clear 158.10 resistance could lead to further consolidation or a deeper pullback toward the cloud top at 153.37. Conversely, a close above 158.10 would signal renewed bullish momentum, potentially driving the pair to fresh highs.