The USD/JPY pair is facing selling pressure on Friday, pulling back from a two-week high reached earlier. The decline is partially due to a slight drop in the US Dollar, but the overall risk-on sentiment in the market is helping to prevent a significant decrease in value for the safe-haven Japanese Yen.
Investors reacted positively to recent US economic data, which showed better-than-expected Retail Sales in July and a strong labor market, easing concerns about a recession. This led to a decrease in expectations for aggressive rate cuts by the Federal Reserve, causing US Treasury bond yields to fall and putting pressure on the USD. On the other hand, Japan’s strong second-quarter GDP data has raised expectations for the Bank of Japan to raise interest rates, further impacting the USD/JPY pair.
Although there is caution among bearish traders, the recent recovery in the pair may not be over yet. Key data releases and upcoming events, such as the FOMC meeting minutes and Jerome Powell’s speech at the Jackson Hole Symposium, will continue to influence market sentiment.
Technical Analysis
Resistance near the 38.2% Fibonacci retracement level at 149.35-149.40 will be crucial in determining the pair’s next move. A break above this level could trigger a rally towards 150.00 and beyond. Conversely, a drop below 148.75-148.70 may lead to further declines towards 148.20 and 148.00. Breaking below these levels could signal a shift in bias towards bearish sentiment.
Overall, the USD/JPY pair is currently influenced by diverging policy expectations between the Fed and BoJ, along with market sentiment and economic data. Traders should monitor key levels and upcoming events to make informed decisions about their investments in the currency pair.