The USD/JPY rebound momentum has suddenly reversed course as traders await the pivotal Federal Reserve interest rate announcement. This key market event could significantly influence USD/JPY price action in the coming weeks.
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USD/JPY Rebound Loses Steam Ahead of Federal Reserve Decision
The recent Dollar-Yen recovery that pushed the pair to test higher levels has begun to unravel, with prices pulling back from the 50-Day Simple Moving Average (146.78). After establishing a series of higher highs and lows during the initial USD/JPY rebound phase, the currency pair is now approaching the monthly low (142.88) following a volatile reaction to the latest US Non-Farm Payrolls (NFP) report.
Market analysts suggest the USD/JPY upward momentum may struggle to maintain momentum as the pair appears to follow the negative trajectory indicated by its moving average. This technical pattern has raised questions about whether the USD/JPY uptrend from early May can sustain itself amid changing macroeconomic conditions.
How Will the Fed Decision Impact the USD/JPY Rebound?
The Federal Reserve’s upcoming interest rate decision stands as a critical factor that could either reinforce or undermine the Dollar-Yen recovery. Currency strategists anticipate the Fed will maintain current monetary policy, potentially providing support for the US Dollar and, by extension, the USD/JPY rebound.
However, the currency’s upward trajectory faces headwinds from multiple directions:
- The exchange rate may continue surrendering gains from May as it tracks the negative slope in the moving average.
- Recent shifts in US trade policy have increased recession concerns, weighing on the USD/JPY rebound.
- President Donald Trump’s comments that “the Fed should lower its rate.”
Despite these challenges, the stronger-than-expected NFP report showing 177,000 new jobs could encourage the Federal Open Market Committee (FOMC) to hold rates steady, potentially reinvigorating the USD/JPY’s recent strength.
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USD/JPY Rebound: Technical Analysis and Trading Outlook
From a technical perspective, the Dollar-Yen recovery is at a critical juncture. The currency pair has snapped its recent pattern of higher highs and lows following an unsuccessful attempt to close above the 144.60-145.90 region. This technical failure threatens the sustainability of the USD/JPY rebound.
Key levels to monitor for the USD/JPY’s strength:
- Immediate support: Monthly low (142.88).
- Critical support: Yearly low (139.89) and 2024 low (139.58).
- Breakdown zone: 140.50-141.50 area could open path to July 2023 low (137.24).
- Resistance for continued USD/JPY uptrend: 144.60-145.90 region.
- Extended targets: 148.70-150.30 zone and April high (150.49).
Future Drivers of the USD/JPY Rebound
The FOMC’s stance on inflation and future rate cuts will be crucial for the USD/JPY upward trajectory. While Chairman Jerome Powell has indicated the Fed “does not need to be in a hurry to adjust our policy stance,” committee projections suggest the federal funds rate could reach 3.9% by year-end.
This potential policy shift creates uncertainty for the USD/JPY rebound, as changes in the interest rate differential between the US and Japan directly impact carry trade dynamics – a key driver of USD/JPY movements.
USD/JPY Rebound at Crossroads
The USD/JPY’s recent strength from early May stands at a pivotal crossroads with the Fed decision likely determining its next directional move. While the pair may struggle to maintain its USD/JPY momentum in the immediate term, a decisive Fed stance supporting the dollar could reinvigorate the upward movement.
Traders should closely monitor both the Fed’s decision and USD/JPY’s reaction to key technical levels to gauge whether the USD/JPY rebound will resume or if further downside is likely in the coming trading sessions.
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