The Japanese yen outlook, USD/JPY reach monthly high

The Japanese yen outlook, USD/JPY reach monthly high

The USD/JPY pair made a fresh monthly high to start trading this week, testing above some of the resistance in the ascending triangle pattern discussed on Friday. Ascending triangles are often targeted with the goal of a bullish breakout. Now that that is the case, another interesting thing is the 135.00 psychological level which offered resistance in the mid-March tests.

That earlier test of 135.00 prompted a strong bearish reaction which then pushed USD/JPY prices down to the 130.00 psychological level to test it two weeks later. However, support remained high and led to a quick rally to 133.76. The resistance level was strong, so the prices went down. However, the prices didn’t go as low as before and stayed around 130.79. Later, the prices went up and hit 133.76 before settling around 132.21. Finally, the prices went back up to the resistance level towards the end of last week.

USD/JPY Technical Analysis

The return to the weekly chart highlights this latest bullish scenario after a strong trend in 2022 that rapidly began to reverse in the fourth quarter. In the first quarter of this year, the 50% line of the main move 2021-2022 came into play, which helped hold the low at 127.27. This hold led to a bounce that added over 1,000 pips until resistance emerged at 137.68. A related pullback led to this test of 130.00 in the middle of last month, and prices have been rising ever since.

The latest Japanese CPI report showed a reading of 3.3% versus the previous month’s print of 4.3%. Therefore, this leaves room for Japanese yen weakness as lower inflation levels in Japan offer less incentive for the Japanese central bank to end its highly dovish monetary policy.

And recently, US interest rates started to rise, which could make the pair one of the most attractive places for dollar strength from a fundamental standpoint, as the Bank of Japan is one of the few central banks not actively discussing tightening policy options.

Of course, that can change, and when you consider that prices are down by a 50% move in three months that took 18 months to build, it shows how crowded trading has become over the past year. However, a bullish range could emerge after a 50% retracement with recent signs of a bullish reappearance, particularly if dollar strength continues to show on higher US interest rates.