USD/JPY Technical Analysis: Stability of Performance, Waiting for Anything New – 21 February 2023

Recently, stocks were in turmoil in February after surging in January in hopes that slowing inflation would make the Federal Reserve easier to handle US interest rates and that the economy could avoid a severe recession. Reports recently have shown more strength than expected in everything from the labor market to retail sales to inflation itself, prompting fears that the Fed will have to get tougher on interest rates.

This led to a sharp recalibration in Wall Street markets as investors moved their rate expectations closer to the Fed’s long-held “higher for longer” stance. The hope is that higher rates will lead to lower inflation, but they also hurt investment prices and risk causing a severe recession.

Economists at Goldman Sachs have added another hike by the Fed in June to their forecast, which means they see the key short-term interest rate eventually rise to a range of 5.25% to 5.50%. That rate was almost zero a year ago and has only been 5.25% since the dot-com bubble deflated in 2001. It currently ranges between 4.50% and 4.75%. The fear is that if inflation proves to be more consistent than expected, it could prompt the Fed to become more aggressive than the market is. These moves were most evident in the bond market, where yields have risen this month on expectations that the Federal Reserve will be more steady. The two-year Treasury yield topped at 4.70%, up from 4.62% late Thursday and from less than 4.10% earlier this month. It later fell to 4.61%. It has recently come close to its highs since November when it reached its highest point since 2007.

There is no change in my technical view of the performance of the currency pair. In the near term, and according to the performance on the hourly chart, it seems that the USD/JPY currency pair is trading within the formation of an ascending channel. This indicates a significant short-term bullish bias in market sentiment. Therefore, the bulls will be looking to ride the current rally towards 135.59 or higher to the 136.15 resistance. On the other hand, the bears will target potential pullback profits around 134.29 or below at the support of 133.71.

In the long run, and according to the performance on the daily chart, it appears that the USD/JPY is trading within a bullish channel formation. This indicates a significant long-term bullish bias in market sentiment. Therefore, the bulls will target extended gains at around 137.68 or higher at the resistance of 140.19. On the other hand, the bears – the bears – will look to pounce on the long-term gains at around 132.66 or below the support at 130.15.