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Summary: USDJPY edged lower on Thursday, keeping negative momentum below the psychological mark of 140.00 after failing to break the 141.00 level several times over the past week. The overall outlook remains bullish but is weakening as the Relative Strength Index (RSI) momentum is approaching the border of negative territory and the stochastic oscillator is moving down.

Fundamentals

In the two months ending in May, the Japanese yen fell 4.7% against the U.S. dollar, the second-worst performance among major currencies, and hit a six-month low of 140.93 on May 30.

A week after leveraged funds increased their net short positions in the yen to the highest level in nearly a year, asset managers increased such positions to the highest level so far in 2023 in the five days ended May 30, Commodity Futures Trading Commission (CFTC) data showed. After being net buyers of the yen for 11 consecutive weeks, fund managers have become net sellers for two consecutive weeks.

While other global central banks are raising policy interest rates, the Bank of Japan may maintain its negative interest rate policy, which provides some confidence for yen selling. However, the weakness of the yen is likely to be limited because of U.S. factors such as concerns about a slowing economy and the possibility that the Fed will suspend tightening and will eventually shift to rate cuts.

There are concerns in the market about the potential for intervention by the Japanese Ministry of Finance if the USDJPY exchange rate falls to 145.00, and such speculation could limit the downside potential for the yen. The Bank of Japan, the Ministry of Finance, and the Financial Services Agency held their first meeting since March on May 30, and the top currency official, Masato Kanda, subsequently stated that the government would take action when necessary.

The USDJPY pair has continued to weaken due to the holding of the trilateral meeting, showing market concerns. However, with U.S. tightening policy nearing its peak or potential risks of economic slowdown in the U.S., it is unlikely that the currency pair will reach 145.00, as the real threat of intervention may arise by then. In our view, the USDJPY trend could be limited to around 143.00 before moving toward 130.00 by year-end.

Technical Analysis

Since mid-March, the USDJPY has been trading within an upward-sloping channel, breaking through key technical levels and making successively higher highs. However, after being rejected close to the 141.00 level, the pair has been trading sideways for the past few trading days.

The current momentum indicators suggest a weakening of bullish momentum. Specifically, the RSI is moving lower but remains above its 50-neutral mark, while the MACD has fallen below its 0-axis.

Should bulls try to push prices higher, initial resistance could be encountered at the May 30 high of 140.90. A break above that level could see the pair rise toward the November 2022 resistance level of 142.25 or higher.

Alternatively, if the uptrend loses steam and the price reverses lower, the near-term support of 138.42 could act as the first line of defense. Below that level, the bears could target the March high of 137.90. Further declines could test the 135.66 area.

Overall, USDJPY seems to be going through a consolidation period after testing resistance close to the 141.00 level, but the pair remains stuck within its medium-term ascending channel. Therefore, unless the bullish pattern gets violated to the downside, the uptrend will most likely resume. In terms of trading strategy, it's recommended to buy the dips.

Trading Recommendations

Trading Direction: Long

Entry Price: 139.30

Target Price: 142.25

Stop Loss: 137.30

Valid Until: 2022-06-22 23:55:00

Support: 138.54, 138.26, 137.77, 137.29

Resistance: 139.73, 140.00, 140.93, 142.25