Fundamental analysis of USD/JPY

Traders are keeping a close eye on the USD/JPY pair amid shifting macroeconomic influences. On the one hand, the Japanese yen is showing relative undervaluation due to the ultra-soft monetary policy of the Bank of Japan (BoJ), which contrasts with other major central banks. The BoJ's commitment to its negative interest rate policy, reiterated by Governor Kazuo Ueda, and market confidence that it will continue at least until next year, put pressure on the yen. At the same time, generally positive risk sentiment on the global market is helping to make the yen less attractive as a safe haven asset.

The U.S. dollar, on the other hand, is holding steady as traders look forward to important economic data and updates from the Federal Reserve. Notably, geopolitical tensions in Russia following the events related to the aborted mutiny, as explained by Russian President Vladimir Putin, led to a strengthening of the US dollar against the ruble. This situation could have an impact on the USD/JPY pair as well.

In the short term, the upcoming economic data releases, including new durable goods orders, housing construction data, consumer surveys and the results of the Federal Reserve's annual stress test for the largest US banks are central to the US dollar. These reports are expected to have a significant impact on market expectations for the trajectory of U.S. interest rates. In particular, the stress test will assess the capital adequacy of banks, and its results could affect capital allocation through share buybacks and dividends. The market is currently pricing in a 25 basis point hike in the Fed Funds target rate in July, but strong economic data could shift expectations toward further rate hikes, which could support the U.S. dollar.

On the Japanese front, downward pressure on the yen could be counterbalanced by concerns about possible intervention by Japanese authorities to support the currency. Japan's chief currency diplomat Masato Kanda issued a warning about yen weakness, while Finance Minister Shunichi Suzuki expressed readiness to respond if the currency moves were deemed excessive.

Thus the USD/JPY is in a difficult dynamic: the yen is weakening due to Japan's soft monetary policy and potential government intervention, while the dollar is strengthening in anticipation of key economic data and geopolitical events. Traders should keep a close eye on these data releases and global events to understand the pair's trajectory.

Technical analysis and scenarios:

Narrowing Bollinger Bands and upward direction, as well as Stochastic showing 79.2960 (above the 75.4473 signal), indicate that momentum is in favor of buyers. However, we should be cautious about the MACD value, which is below the signal, indicating a potential weakening of the upward momentum.

Main scenario (BUY)

Recommended entry level: 144.100.

Take Profit: 144.500.

Stop loss: 143.900.

Alternative scenario (SELL)

Recommended entry level: 143.900.

Take Profit: 142.910.

Stop Loss: 144.100.