USD/JPY short-term rally continues; selling on highs recommended – OCBC

USD/JPY Short-Term Rally Faces Resistance Amid Key Economic Data

USD/JPY surged to 144.03, boosted by USD short covering and month-end portfolio flows, marking a notable short-term rally. OCBC’s FX strategists Frances Cheung and Christopher Wong highlight that near-term risks remain skewed to the upside, with key resistance levels at 145.40 (50-day moving average) and 146.10, while support stands at 142.20.

The pair’s momentum appears to be shifting, as mild bearish signals on the daily chart fade and the Relative Strength Index (RSI) rises, suggesting further upward pressure. However, strategists recommend selling into rallies rather than chasing the upside aggressively.

Looking ahead, important US economic releases such as the Federal Open Market Committee (FOMC) meeting minutes and Core Personal Consumption Expenditures (PCE) data are expected to influence USD/JPY dynamics. In addition, Tokyo’s upcoming inflation (CPI), industrial production, and retail sales reports will be closely watched, with hotter-than-expected figures likely to curb recent gains.

Despite possible delays, the Bank of Japan’s policy normalization process remains intact. The ongoing divergence between the Federal Reserve’s tightening stance and the BoJ’s looser monetary policy continues to exert downward pressure on USD/JPY over the medium term. Nevertheless, short-term USD strength driven by data releases and market flows may lead to temporary rallies, offering traders opportunities to sell near resistance levels.

In summary, while USD/JPY shows signs of a short-term bullish move, traders should remain cautious and consider selling on strength, anticipating that broader trends favor a gradual weakening of the pair due to differing central bank policies.