USD/JPY Eyes Breakout Above 143.50 Amid Fed Rate Cut Speculation

During the European trading session, USD/JPY broke its two-day losing streak, trading around 142.90. The Federal Reserve (Fed),

Written by: Arslan Butt • Thursday, September 12, 2024 • 2 min read

• Last updated: Thursday, September 12, 2024

During the European trading session, USD/JPY broke its two-day losing streak, trading around 142.90. The Federal Reserve (Fed), which supports the US Dollar (USD), is increasingly likely to cut interest rates in September as a result of this recovery.

Additionally, recent comments by Bank of Japan (BoJ) board member Naoki Tamura, stating there is “no preset idea on the pace of further rate hikes,” have kept the Japanese Yen (JPY) subdued.

The BoJ’s cautious approach to monetary tightening starkly contrasts with the aggressive policies seen in the US and Europe.

USD/JPY is close to erasing all of its 2024 gain on relatively hawkish comments from the BOJ and betting markets marking down the odds of a Trump win in November.

A BOJ rate hike is on the table is the takeaway from comments today by BOJ Board Member Junko Nakagawa.

โหมดสงบสุข pic.twitter.com/BuKWNps9K8

— ᝰ.ᐟ🫐 (@jrpj__) September 11, 2024

While Tamura’s comments suggest Japan’s tightening cycle will be slow, the timeline for rates reaching 1% remains uncertain, dependent on Japan’s economic conditions.

In the meantime, the strength of the USD, driven by reduced expectations of a large Fed rate cut, continues to fuel the USD/JPY rally.

US CPI Report and Fed Rate Cut Expectations Drive USD/JPY Higher

On the US economic front, the August Consumer Price Index (CPI) revealed a year-on-year inflation drop to 2.5%, marking a three-year low.

The likelihood of the Fed cutting interest rates significantly, however, decreased as core inflation remained steady.

The CME FedWatch Tool indicates a sharp decline in the likelihood of a 50 basis point rate cut, down to 15%. Investors now expect a more moderate 25 bps cut during the upcoming September meeting.

Asia Colour – 12 Sep 24

1/ Last night's US CPI data came in as expected, with core #CPI rising slightly to 0.3% m/m, above the 0.2% estimate. This has increased the probability of a 25bps Fed rate cut to 85%, the highest level in a month.

— QCP (@QCPgroup) September 12, 2024

This outlook has provided additional upward momentum for the USD/JPY, as the anticipated gradual pace of monetary easing by the Fed strengthens the USD against the JPY.

USD/JPY Technical Outlook: Key Levels to Watch

USD/JPY is currently trading at 142.817, up 0.32%, continuing its upward momentum. On the 4-hour chart, the pair is holding above the 50-day Exponential Moving Average (EMA) at 142.61, which acts as a key support level.

This reinforces the overall bullish trend, although some consolidation has been observed in recent sessions.

Resistance Levels:

Immediate resistance is at 143.51. A breakout above this level could lead to further upside, with targets at 144.24 and 145.16.

Support Levels:

Immediate support is found at 141.69. If breached, the next key support sits at 140.70, with deeper pullback potential toward 139.78 in case of increased selling pressure.

Technical indicators, such as the Relative Strength Index (RSI), currently stand at 55, signalling moderate bullish momentum. This leaves room for potential upside as long as the price stays above key support levels.

Conclusion: Bullish Momentum Continues for USD/JPY

The USD/JPY outlook remains bullish as long as the pair holds above the pivot point at 142.36. Traders should watch for a break above the 143.51 resistance level, which could trigger additional gains.

#USDJPY is moving in a descending channel above the trend lines.

The price is moving from the lower boundary of the channel and the support level.

The chart has formed a pattern AB=CD.

We expect the rebound to continue after consolidation above the dynamic resistance.#EURUSD… pic.twitter.com/aw0dwaY54A

— Janey (@Janey_CFA) September 12, 2024

On the downside, a fall below 141.69 could signal a near-term bearish shift, but overall sentiment continues to favour further upward movement for the pair.