USD/JPY Daily Chart Analysis – 2024-02-12

From a technical perspective, USD/JPY is exhibiting signs of a slight bearish pullback within a broader uptrend. The price is currently testing the support zone around the 149.00 level, as indicated by the chart’s price action being above the ascending trend line but below recent highs. The presence of Fibonacci retracement levels suggests that traders are likely to observe these levels for potential reversal or continuation patterns. The RSI is above the midline but not in overbought territory, and the momentum indicator is showing a slight decline, which aligns with the minor price retracement observed.

The pair is being influenced by contrasting monetary policies between the Federal Reserve and the Bank of Japan (BoJ). Elevated U.S. yields are supportive of the dollar, as rate cut bets have been pared back, with the central bank signaling it is not in a rush to reduce rates. This is juxtaposed with dovish comments from the BoJ, which continue to apply downward pressure on the yen. Traders are awaiting Tuesday’s U.S. inflation data, which is pivotal for setting Fed rate expectations.

Overall Market Sentiment: The market sentiment for USD/JPY is cautiously optimistic, leaning towards a bullish outlook with underlying caution ahead of key economic data releases:

• 60% Positive: This sentiment is supported by the higher U.S. yields and the aggressive stance of the Fed, suggesting continued strength in the dollar relative to the yen.
• 25% Neutral: Due to the wait-and-see approach of the market ahead of the U.S. inflation data, which could greatly influence the direction of the pair.
• 15% Negative: Reflecting the potential for a pullback as indicated by the technical indicators and the uncertainty surrounding the upcoming economic data.

The positive sentiment captures the current market environment where the divergence between the Fed’s and the BoJ’s policies favors the dollar. The neutral sentiment reflects the market’s hesitancy before the release of critical inflation data, which could swing sentiment significantly based on the outcome. The negative sentiment accounts for the possibility of a sharper-than-anticipated retracement or a shift in the Fed’s policy outlook based on new data.