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Bearish Retracement to Key Support Zone May Set the Stage for Bullish Trend Continuation
Forex
Economic
Summary:
This technical alignment suggests the retracement possesses sufficient momentum to extend further until it tests the critical confluence formed by the primary ascending trendline and the key moving averages.
Buy
TradingUSDJPY
EXP
157.727
Entry Price
159.400
TP
156.900
SL
157.944 -0.113 -0.07%
0
Point
Flat
156.900
SL
CLOSING
157.727
Entry Price
159.400
TP
Market sentiment surrounding the Japanese Yen remains pressured by expectations that Prime Minister Sanae Takaichi will gain significant leverage to implement expansive fiscal policies, providing a consistent tailwind for the USD/JPY pair. Takaichi intends to dissolve parliament next week and call for snap elections to consolidate her political standing. Analysts suggest that if Takaichi’s Liberal Democratic Party secures a clear majority in the Lower House, the Yen is poised for further devaluation. Amidst this volatility, Japanese Finance Minister Satsuki Katayama issued another verbal intervention on Wednesday, asserting that officials remain prepared to take "appropriate actions against excessive foreign exchange movements without excluding any options."
In contrast, the U.S. labor market continues to demonstrate remarkable resilience. Initial jobless claims dropped to 198,000 last week, significantly undershooting market forecasts, while continuing claims declined to 1,884,000. These labor metrics reinforce the narrative of a robust domestic economy and complement other strong indicators of economic activity. Specifically, the U.S. Census Bureau reported a 0.6% surge in retail sales for November, reaching $735.9 billion and comfortably surpassing the anticipated 0.4% increase. Furthermore, both headline and core Producer Price Index (PPI) readings reached 3% year-over-year, highlighting persistent inflationary pressures within the system.
Currently, Federal Reserve officials remain divided on the appropriate trajectory for monetary policy. Atlanta Fed President Raphael Bostic emphasized that inflation remains far from the target, necessitating a restrictive stance. Conversely, Neel Kashkari of Minneapolis noted a stabilizing labor market amidst resilient growth. Adding to the internal debate, Governor Miran and Philadelphia’s Anna Paulson have adopted a more dovish tone; Miran reiterated the necessity of 150 basis points of easing this year, while Paulson suggested the 2% target remains achievable by year-end. Amidst these divergent views, Chicago Fed President Austan Goolsbee underscored that central bank independence remains the vital key to maintaining long-term price stability.
Technical Analysis
The short-term structure for USD/JPY suggests that a bearish correction is currently unfolding following a sharp rejection at the recent highs near 159.40. Price action is now gravitating toward an established support cluster situated between 157.72 and 157.18. Within this framework, the MACD is actively synchronizing with the corrective move, as the signal lines complete a bearish crossover. This technical alignment suggests the retracement possesses sufficient momentum to extend further until it tests the critical confluence formed by the primary ascending trendline and the key moving averages.
The optimal scenario for a bullish rebound involves a measured approach to this specific support level. Traders should monitor for signs of exhaustion in the MACD histogram, specifically looking for the red bars to lose depth, signaling a clear dissipation of selling pressure within the designated "Buy Zone." A stabilization near the zero line, followed by a bullish pivot from this high-value area, would effectively validate the continuity of the broader trend.
Should the oscillator successfully reset in this zone, it would provide the necessary technical foundation to resume the dominant impulse and retest previous resistance targets. However, if the price fails to attract significant demand at this confluence, the corrective phase could deepen, potentially challenging the integrity of the long-term bullish structure.
Trading Recommendations
Trading direction: Buy
Entry price: 157.73
Target price: 159.40
Stop loss: 156.90
Validity: Jan 28, 2025 15:00:00
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