The USDJPY pair has fallen below a crucial resistance level, raising doubts about its next steps. The recent dip in the US dollar’s strength, due to weak inflation numbers, has lowered expectations for big interest rate hikes, with the market now foreseeing two possible rate cuts by the end of the year. In Japan, political changes are impacting trade negotiations with the US. The ruling party’s loss of its upper house majority has added complexity to these talks, which could lead to changes in fiscal policies and trade agreements. It’s important to pay attention to these changes as they could affect negotiations. On the daily chart, USDJPY could not hold above the 148.30 resistance and has now declined, with sellers targeting a drop to 142.35. However, if the pair breaks above this resistance level, the next target for buyers could be 151.20. The 4-hour chart indicates that the upward trendline has broken, suggesting a possible short-term downtrend. Sellers are looking to push below minor support at 147.00, while buyers hope for a rebound. The 1-hour chart shows potential dip-buying opportunities at support levels, while sellers are aiming for a breakout to the downside. Key upcoming events to watch include speeches, Japanese and US Flash PMIs, US Jobless Claims, and the Tokyo CPI release. Given the current market conditions, trading within the range seems more favorable than chasing a breakout. Since the pair has struggled at the key resistance point, traders might consider strategies like selling a strangle, which profits when the pair stays between major support and resistance levels. This strategy takes advantage of the market’s current indecision. The main driving factor remains the significant interest rate gap, with the U.S. federal funds rate above 5.3% while Japan’s is only 0.1%. Recent U.S. jobless claims data staying below 220,000 supports the idea of a robust labor market, making it unlikely for the Federal Reserve to make substantial rate cuts soon. This difference should help keep the currency pair above the 147.00 level. However, we need to be cautious about yen strength, especially given the political uncertainty highlighted by Ishiba. Historically, Japan’s Ministry of Finance has stepped in to support its currency when necessary, such as in late 2022 when the pair surpassed 151. If prices approach the 151.20 target, the likelihood of official intervention increases, making long call options potentially risky without a clear exit plan. For now, the break of the short-term upward trendline suggests that traders should consider bearish positions on any rallies back toward the 148.30 resistance. Using put options to bet on a dip to the 142.35 support offers a solid risk-to-reward setup. Upcoming data, such as the Tokyo CPI, which recently recorded a year-over-year increase of 2.2%, will be closely monitored for signs that might prompt the Bank of Japan to change its approach.

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