The USD/JPY pair experienced renewed selling pressure on Friday as a combination of factors weighed on the currency. A recovery in the US Dollar from its year-to-date low contributed to the sell-off, although spot prices managed to hold above the weekly low. Traders are now eagerly awaiting Federal Reserve Chair Jerome Powell’s speech at the Jackson Hole Symposium for signals on the US central bank’s rate-cut path, which will have a significant impact on the currency pair’s direction. Expectations for a rate cut by the Fed continue to act as a headwind for the USD, influencing the pair’s movement.
Investors are betting that the Fed will lower borrowing costs by 25 basis points, with some even pricing in a larger 50 bps rate cut. This optimism was fueled by a review of employment data showing a significant discrepancy in job numbers and minutes from the FOMC meeting indicating growing support for a rate cut. In addition, recent labor market data suggests a cooling economy, further strengthening the case for a rate reduction.
On the technical side, the USD/JPY pair could find support near the 145.00 mark, with potential for a further decline towards 144.00. However, a break above 146.00 could trigger a short-covering rally and push the pair towards 147.00 and beyond.
Overall, the USD/JPY pair is facing downward pressure due to a combination of Fed rate cut expectations, mixed economic data, and market volatility. Powell’s speech will be a key driver for the currency pair’s direction in the near term.
Technical Outlook
From a technical perspective, any further weakness is likely to find some support near the 145.00 psychological mark ahead of the weekly low, around the 144.45 region touched on Wednesday. Some follow-through selling will reaffirm the negative outlook and prompt aggressive selling. Given that oscillators on the daily chart are holding deep in negative territory and still away from being in the oversold zone, the USD/JPY pair might then accelerate the fall towards the 144.00 round figure. The downward trajectory could eventually drag spot prices to the 143.40 intermediate support en route to the 143.00 mark.
On the flip side, any strength beyond the 146.00 round figure might continue to attract fresh sellers and remain capped near the 146.50-146.55 supply zone. A sustained strength beyond, however, could trigger a short-covering rally and lift the USD/JPY pair beyond the 147.00 mark, towards the next relevant hurdle near the 147.35-147.40 region. Some follow-through buying could negative the negative outlook and pave the way for a move towards reclaiming the 148.00 mark.