USDJPY Faces Critical Resistance Ahead of BOJ Rate Decision

Summary:

USDJPY is facing some selling pressure early on in today’s Asian session, ahead of the BOJ rate statement scheduled tomorrow.

USDJPY is facing some selling pressure early on in today’s Asian session, ahead of the BOJ rate statement scheduled tomorrow. As of this writing, the currency pair is trading at 107.18, down from its Asian session highs at 107.35 and from where it opened at 107.22.

As reported by my colleague Crispus Nyaga yesterday, the consensus among analysts is for the BOJ to sit on the sidelines in its monetary policy meeting tomorrow. This means that the interest rate by the central bank would likely remain at -0.10%. There are also no changes expected on the BOJ’s quantitative easing program and yield curve target.

Ahead of the BOJ rate decision tomorrow, the US will release its inflation data for June. The headline CPI figure for the month is expected to come in at 0.5%. Meanwhile, the core reading is eyed at 0.1%.

Technical Analysis

On the 4-hour time frame, it can be seen that USDJPY is testing a confluence of resistance around 107.30. For one, this price corresponds to the falling trendline when you connect the highs of July 1, July 7, and July 8. It’s also worth noting that the 100 SMA also aligns nicely to this price. Lastly, when you draw the Fibonacci retracement tool from the high of July 7 to the low of July 10, you will see that this area also corresponds to the 61.8% Fib level. Reversal candlesticks have already formed which could suggest that USDJPY may soon revisit its July 10 lows at 106.63. If support at this price does not hold, the next floor for the currency pair could be at 106.44 where it found support on June 23.

On the other hand, a strong close above today’s Asian session highs at 107.35 could be enough for the confluence of resistance to be invalidated. Should this happen, we could soon see USDJPY retest its July 7 highs at 107.78. If resistance at this price does not hold, the next ceiling for the currency pair could be at 108.15 where it peaked on July 1.