USD/JPY retreats after a brief rally, trading near 147.20 as market attention shifts towards growing concerns over the Federal Reserve’s independence. The pair, which had been in an upward trajectory for the past three days, is now facing headwinds due to political uncertainty surrounding US President Trump’s efforts to control the Fed, especially following the unprecedented removal of Governor Lisa Cook. As Cook prepares to challenge the President in court, market participants are questioning the stability and credibility of the Fed’s decision-making process.
USD/JPY Technical Analysis: Key Levels to Watch
Currently trading around 147.20, USD/JPY is forming an Ascending Triangle, a technical pattern that signals a potential volatility breakout. The upper boundary of this pattern is set at 151.20 (March 28 high), while the lower support lies at 139.40 (April 22 low). The pair is attempting to break above the critical 200-day Exponential Moving Average (EMA) around 147.90, but the 14-day Relative Strength Index (RSI) suggests the trend is sideways, oscillating between 40.00-60.00, indicating consolidation.
Key Resistance Levels:
- 148.78 (August 22 High)
- 150.00 (Psychological Level)
- 151.20 (March 28 High)
Key Support Levels:
- 145.85 (July 24 Low)
- 144.22 (July 7 Low)
- 143.45 (July 3 Low)
If the pair breaks above 148.78, it could continue toward 150.00 and eventually challenge the 151.20 level. However, any reversal below 145.85 could trigger a deeper pullback, with the next support levels at 144.22 and 143.45.
Fundamental Overview: Fed’s Policy Uncertainty Weighs on USD
Market sentiment surrounding the US Dollar has softened following recent remarks by New York Fed President John Williams, who suggested the Fed may need to cut rates in September, depending on economic data. This dovish stance, combined with concerns about Trump’s interference with the Fed, has raised doubts about the Greenback’s strength in the short term.
Trump’s Actions on the Fed
The firing of Fed Governor Lisa Cook marks a turning point, with President Trump aiming to fill the vacancy with a candidate more aligned with his policy agenda. This move has led to fears about the Fed’s independence, with market participants questioning whether the central bank can continue to set monetary policy free from political pressure. This has contributed to the growing bearish pressure on the US Dollar, as investors are wary of potential policy shifts that could derail economic stability.
Japanese Yen Supported by BoJ’s Hawkish Tone
On the flip side, the Japanese Yen is showing resilience, buoyed by Bank of Japan Governor Kazuho Ueda’s recent remarks about inflationary pressures. Ueda has raised concerns over the impact of rising wages on inflation, which has spurred market speculation that the BoJ might implement a rate hike in the coming months. With inflationary pressures mounting, traders are keeping a close eye on the upcoming Tokyo Consumer Sentiment Index data, due on Thursday, which could further support the Yen if inflationary data aligns with Ueda’s concerns.
The BoJ’s hawkish shift is providing much-needed support for the Yen as market sentiment increasingly views the central bank’s stance as a factor that could impact monetary policy tightening. If the Tokyo CPI reading shows significant inflationary pressure, it would add further momentum to the Yen, possibly pushing USD/JPY lower.
Conclusion
The USD/JPY pair is at a crossroads, with political uncertainty and the potential for rate cuts by the Fed keeping the pair on the defensive. The pair remains in a technical consolidation, and its next move will likely depend on developments surrounding Fed policy and inflation data from Japan. With the Fed’s credibility under scrutiny and the BoJ’s hawkish signals, USD/JPY could see further downside pressure if these factors continue to influence the market. Keep an eye on the 147.90 level for potential breakouts or reversals in the near term.
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