The USD/JPY pair remains strong as the Yen struggles due to fiscal issues. Currently, it trades around 156.30, with the Yen failing to make significant gains. This reluctance comes as Japan’s recent stimulus package raises concerns about its debt sustainability. The timing of a Bank of Japan (BoJ) rate hike is still uncertain, with many watching for clues in November’s Tokyo Consumer Price Index. Meanwhile, there’s an 85% chance that the Federal Reserve will cut rates by 25 basis points in December, according to the CME FedWatch Tool.

Technical Analysis of USD/JPY

From a technical standpoint, USD/JPY shows a strong uptrend within a rising channel, featuring higher highs and lows and trading above crucial moving averages. However, indicators like the MACD and RSI indicate diminishing momentum, hinting at possible consolidation. Support is around 155.00, which aligns with the 21-day SMA, while resistance is near the 157.00-157.50 range. Historically, BoJ policies have led to Yen depreciation, especially as other global banks raise rates. The BoJ’s expected shift in 2024 from an ultra-loose policy is due to rising inflation in Japan and the chance of salary increases. Despite some signs of bullish exhaustion, USD/JPY remains steady around 156.30. The US dollar’s strength, even in thin holiday trading, highlights the Yen’s ongoing weaknesses. Japan’s fiscal concerns are exacerbated by Prime Minister Takaichi’s new ¥20 trillion stimulus package, increasing the country’s debt-to-GDP ratio toward 270%.

Strategies for USD/JPY Trading

In the upcoming weeks, traders could benefit from strategies that take advantage of consolidation or a narrow trading range. With the Relative Strength Index (RSI) retreating from overbought levels to around 62, we recommend considering options strategies like short straddles or iron condors. A clear trading range is emerging, with robust support at 155.00 and resistance near 157.50. The fundamental landscape is influenced by differing central bank policies. There’s an 85% chance of a Federal Reserve rate cut next month, reinforced by last week’s disappointing Non-Farm Payrolls, which showed just 160,000 jobs added. On the other hand, the Bank of Japan is hesitant to increase rates again, especially after the Tokyo Core CPI for November came in at 2.4%, below the 2.6% expectation. This setup indicates that although the overall trend is still upward, momentum is weakening. Traders seeking direction should set alerts for a clear break from the established range. A sustained move above 157.50 could trigger buying call options, aiming for this year’s high near 158.88. However, we should be cautious of a potential drop below the 155.00 support level, which is also the lower boundary of the ascending channel. Everyone remembers the sharp drops caused by Ministry of Finance interventions in spring 2024. A break below this key level could lead to a swift decline toward the 50-day moving average near 152.38. Thus, using protective put options or put spreads could be a wise hedging strategy. Create your live VT Markets account and start trading now.

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