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The Bank of Japan (BoJ) has released its summary of views, accompanied by some pessimistic comments from BoJ policymakers. BoJ Deputy Governor Shinichi Uchida has toned down some of Governor Ueda’s more hawkish remarks, helping to stabilize the market.
The BoJ noted that the probability of hitting the inflation target has increased, but also expects some upward pressure. The BoJ expects inflation to hit the target by the second half of 2025. This scenario poses an intriguing question for market participants and could put the yen in a strong position next year.
While central banks around the world are cutting interest rates, the BoJ plans to raise and tighten rates, which could catapult the yen to the top of the gainers in 2025. Although there is still a long way to go, this is something to keep in mind.
In the short term, yen pairs remain interesting but are under downward pressure. Geopolitical concerns could strengthen the yen. However, the safe-haven appeal could be spread between the US dollar, the yen and the Swiss franc, potentially erasing the yen’s gains against the dollar but giving it advantages against the euro and the GBP.
Full summary of BoJ statements
Technical Analysis
USD/JPY
From a technical perspective, USD/JPY has rallied sharply and formed an imperfect Morning Star candlestick pattern. Usually, such a pattern signals a bullish move, but several factors need to be considered.
From a price action perspective, the H4 chart has shown higher highs and higher lows since Monday’s low at 141.67, suggesting a possible return to the 150.00 level in the coming days.
What could invalidate the bullish move? A H4 candle closing below the recent lower swing high at around 144.25 would invalidate the bullish forecast. This would break the current structure and could push the yen to retest the psychological level of 140.00.
An upward move from here faces immediate resistance at 148.00 before the psychological mark of 150.00 comes into focus.
USD/JPY daily chart, August 8, 2024
Source: TradingView (click to enlarge)
Support
Resistance
- 148.00
- 150.00 (psychological level)
- 150.87
GBP/USD
GBP/JPY mirrors the USD/JPY chart and is currently trading just above the key support level at 185.00. The H4 chart shows a similar pattern to USD/JPY, with higher highs and higher lows since Monday’s decline just below the 180.00 mark.
The bulls are in control at the moment, but a break and close of the H4 candle below 183.30 would invalidate the bullish structure. This could lead to a retest of the recent lows and possibly a move towards the 175.00 level.
On the upside, resistance is at 187.65, followed by the 190.00 mark. Above 190.00, there is a resistance zone around 192.00 before the descending trend line becomes relevant.
GBP/JPY four-hour chart (H4), August 8, 2024
Source: TradingView (click to enlarge)
Support
Resistance
EUR/USD
Again, the chart almost mirrors USD/JPY and GBP/JPY, with the daily chart showing an imperfect Morning Star candlestick pattern. This morning, EUR/JPY retested the support area around the 159.00 mark before recovering to trade at 159.66 at the time of writing.
On the H4 time frame, a close below the recent lower swing high at 157.50 would invalidate the current uptrend and potentially lead to a retest of recent lows around the 154.40 level. There is some support at 156.72 that would need to be broken for a retest of recent lows to occur.
On the upside, the immediate resistance is at 160.00, followed by the 161.86 level. Moreover, the 163.51 zone could be crucial as it also coincides with the 200-day moving average just above it.
EUR/JPY daily chart, August 8, 2024
Source: TradingView (click to enlarge)
Support
Resistance
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He has spent the last three years as an analyst honing his skills in various areas of finance including technical analysis, economic data interpretation, price action strategies, and analyzing geopolitical impact on global markets. Zain is currently working on his Capital Markets & Security Analyst (CMSA) certification with the Corporate Finance Institute (CFI), where he has completed modules in Fixed Income Fundamentals, Portfolio Management Fundamentals, Equity Market Fundamentals, Introduction to Capital Markets, and Derivatives Fundamentals.
He is also a regular guest on radio and television shows in South Africa, providing insights into global markets and the economy. He has also helped develop a financial markets course recognised by BankSeta (Banking Sector Education and Training Authority) at NQF Level 6 in South Africa.
