- Summary:
- USDJPY has come under pressure despite the dollar previously holding off the yen after Fed rate cut. But is it sustainable?
The Japanese yen gained ground against the US dollar on Friday as traders responded to a combination of soft US macroeconomic news. The USDJPY pair traded at 156.51, having gained 0.5% at the time of writing. The dollar had previously resisted downward pressure after the Federal Reserve reduced interest rates by 0.25% on Wednesday.
However, Japan’s hot inflation data cracked the greenback’s resistance after the US also reported soft Personal Consumption Expenditure (PCE) figures. Japan’s annualized core inflation rate rose from October’s 2.3% to 2.7% in November.That reading exceeded analysts’ forecast of 2.6% adding credence to a potential interest rate hike by the Bank of Japan (BOJ). However, the central bank stated on Thursday that it will wait for spring wage negotiations before making a decision.
Meanwhile, the US PCE inflation rate declined to 0.1% in November from October’s 0.3%, missing the consensus forecast rate of 0.2%. However, the USDJPY downside is likely to with the Fed having stated that it intends to have fewer rate cuts in 2025. Also, the incoming Trump administration’s economic policies are perceived as inflationary, and that will likely add fuel to the currency pair’s upside.
USDJPY prediction
The momentum on the USDJPY currency pair signals that the downside is likely to prevail if resistance stays at 156.11. With the sellers in control, the pair will likely find the first support at 155.45. However, a stronger downward momentum could break below that level and test the second support at 154.80.
On the other hand, moving above 156.11 will favour the buyers to take control. In that case, USDJPY could move higher and encounter the first resistance at 156.88. Breaking above that level will invalidate the downside narrative. Also, it could trigger a stronger upside momentum that could potentially test the second resistance at 157.30.
