USDJPY – Hawkish Powell sends the cross above 200MA – potential for long

Federal Reserve Chair Jerome Powell’s hawkish tilt, in combination with the view that Japan’s central bank will keep policy unchanged this week, is maintaining downward pressure on the yen.

The dollar-yen currency pair has risen above the 200-day moving average for the first time since the Bank of Japan’s surprise tweak of yield-curve control pushed the pair down below that line on Dec. 20.

“It is clear the strong dollar is a trigger for this move and as long as US rates rise, the dollar/yen will continue to try the upside,” said Junichi Ishikawa, IG Markets Ltd.’s senior FX strategist, who sees the next target at 138 per dollar.

USDJPY Daily Chart

Shortly before the end of the session after the break of the 200MA, the quotes failed to hold above the MA. We are watching the close of the daily bar and especially the behavior of tomorrow’s bar to form price action. Sentiment remains bullish before Friday’s Nonfarm Payrolls data and the Bank of Japan’s rate and monetary policy decision. A very likely break out of the current bar’s high and a move above 138 will solidify the breakout of the 200MA and horizontal resistance and send quotes towards the levels around 139.80 / 50.0 fibo and the upper trendline of the current bullish channel.

Sequential forms a bullish pattern, and the Demarker oscillator rebounds from the overbought zone, reinforcing bullish sentiment.

Alternatively:

A rebound from the 200MA would activate a new downside move towards the support area at 135.50 / horizontal support and the lower trendline of the uptrend.

Market Profile

The current Point of Control is formed above the upper limit of the previous Value Area, a signal of bullish sentiment and price migration to the north. A first rejected single print above the upper limit of the current Value Area holds the upside for now, but the TPOs indicate a potential for a move to the Projection Line resistance around the 139 levels.

FX Forecast Outlook

Long-term sentiment among bank traders remains in anticipation of a resumption of shorts towards 125 yen to the dollar by the end of the year, but the bullish corrective formation has not yet completed its cycle.