USD/JPY Price Forecast: Strength beyond 160.00 awaited amid bullish technical setup

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The USD/JPY pair builds on gains from the past two days and opens with a bullish gap at the start of the new week, rising to the 159.85 region during the Asian session. However, intervention fears keep a lid on any further appreciation for spot prices.

USD/JPY struggles to build on modest Asian session gains as intervention fears limit JPY losses.
The fundamental backdrop favors the USD bulls and backs the case for further gains for the pair.
The technical setup also suggests that the path of least resistance for spot prices is to the upside.

Failed US-Iran peace talks trigger a fresh wave of the global risk-aversion trade and benefit the US Dollar's (USD) reserve currency status. Adding to this, rallying Crude Oil prices fuel inflationary fears and reaffirm hawkish US Federal Reserve (Fed) expectations, which further underpins the buck and offers support to the USD/JPY pair.

The Japanese Yen (JPY), on the other hand, is weighed down by economic concerns stemming from imported energy shocks due to the Middle East conflict. However, speculations that authorities would step in to stem further JPY weakness hold back bearish traders from placing aggressive bets and cap gains for the USD/JPY pair.

Spot prices retain a bullish bias following last week's resilience below the 158.25-158.20 horizontal support. Furthermore, the USD/JPY pair holds comfortably above the 200-period Simple Moving Average (SMA). The Relative Strength Index (RSI) near 63 suggests firm upside momentum without yet signaling overbought conditions.

Adding to this, the Moving Average Convergence Divergence (MACD) turns increasingly positive, hinting that buyers retain control for now. The USD/JPY bulls, however, might await a sustained strength and acceptance above the 160.00 psychological mark before positioning for an extension of a three-day-old appreciating move.

On the downside, initial support is reinforced by the 200-period SMA at 158.56, which underpins the broader uptrend and would be the first level watched in the event of a corrective pullback. This is followed by the 158.25-158.20 support and the 158.00 mark, which, if broken, could turn the USD/JPY pair vulnerable.

(The technical analysis of this story was written with the help of an AI tool.)

USD/JPY 4-hour chart

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

How often does the Fed hold monetary policy meetings?

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

What is Quantitative Easing (QE) and how does it impact USD?

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

What is Quantitative Tightening (QT) and how does it impact the US Dollar?

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.