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USDJPY Growth may Continue with the Target at 138.70

3/8/2023 1:16 PM

After yesterday's speech by the head of the US Federal Reserve, Jerome Powell, in the US Congress, the USD/JPY pair is testing the level of 137.80 for a breakout, renewing local highs from December 15 and preparing to continue moving to 138.70.

The official said the latest economic data was stronger than expected, suggesting that the final level of interest rates is likely to be higher than previously thought. Against this backdrop, market participants' forecasts for an increase in the indicator on March 22 have changed dramatically: yesterday, the probability of an increase of 50.0 basis points, according to the Chicago Mercantile Exchange (CME) FedWatch Instrument, was 31.5%, and today it has already reached 73.5%. As a result of the rhetoric of the American financial authorities, the dollar moved to active growth and strengthened against its main competitors.

Pressure on the position of the yen is exerted by poor macroeconomic statistics from Japan: the index of leading indicators in January showed a decrease from 97.2 points to 96.5 points, while the forecast was to reduce only to 97.1 points, the index of coinciding indicators for the same period corrected from 99.1 points to 96.1 points, which also was significantly worse than market expectations of 98.9 points, and the volume of bank lending in the country accelerated from 3.1% to 3.3% in February, while analysts predicted a slowdown in dynamics to 2.6%.

On Friday, there will be a meeting of the Bank of Japan on interest rates. Market participants expect the figure to remain at a record low of –0.10%, in which case the yen is likely to continue to lose value against the US dollar.

The long-term trend is downward but at the moment, the trading instrument is moving within an upward correction with the target at 138.70, from which it will be possible to consider new sales along the trend with the first target at 134.50 but if it is broken, the price may reach the next level resistance 142.40.

The medium-term trend is upward, and yesterday the quotes reached the target zone 2 (138.18–137.61), in case of a breakout of which the next target will be zone 3 (144.10–143.57), and in the opposite case, a correction will begin around the key trend support 132.48–131.96, after the test which it will be possible to consider new purchases with the target at the low of the week 137.80.

Resistance levels: 138.70, 142.40. | Support levels: 134.50, 130.90.

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