USD/JPY Achieves First Five-Day Rally Since June: Key Insights and Analysis

US Dollar Analysis: USD/JPY Performance

The USD/JPY has recently ascended to a new monthly peak of 153.75, marking a significant five-day rally, the first of its kind since June. Market participants are keenly awaiting the Federal Reserve's upcoming interest rate decision, which is expected to further influence the currency pair as the central bank looks to ease its previous monetary restrictions.

Five-Day Upsurge in USD/JPY

As the USD/JPY tracks the upward movement of long-term US Treasury yields, it has gained momentum since the week's commencement. The strength of the US Dollar suggests that the pair may continue to recover from its drop from the November high of 156.75, fueled by ongoing bullish sentiment.

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US Economic Calendar Overview

Looking ahead, the Federal Open Market Committee (FOMC) is anticipated to announce a 25 basis points rate cut during its final meeting of 2024. Such movements from the Fed could pose challenges for the US Dollar as the central bank approaches a more neutral monetary posture.

Additionally, the FOMC may revise its forward guidance on monetary policy. It is expected that Chairman Jerome Powell and his colleagues will release an updated Summary of Economic Projections (SEP), potentially signaling a more gradual approach to unwinding current policies if an upward revision to the interest rate dot-plot occurs.

A hawkish tone from the Fed in light of these rate cuts may provide ongoing support for USD/JPY. This is particularly true as the Fed emphasizes that its policy decisions are not predetermined, although any shifts in carry trade dynamics could limit gains in the exchange rate as global monetary policies evolve.

USD/JPY Daily Price Chart Analysis

• The USD/JPY extends its recent advance, achieving a new monthly high of 153.75. A daily close above 153.80, which aligns with the 23.6% Fibonacci retracement level, could drive the pair towards 156.50, the 78.6% Fibonacci extension.
• Should the price surpass the November peak of 156.75, it could target 160.40, last seen in 1990. However, if USD/JPY cannot reclaim the 156.50 level, it may struggle to sustain gains from its monthly low of 148.65.
• A drop below 151.95, which represents the 2022 high, could lead USD/JPY back toward the vicinity of 148.70 (38.2% Fibonacci retracement) to 150.30 (61.8% Fibonacci extension), with further interest around 144.60 (50% Fibonacci retracement) to 145.90 (50% Fibonacci extension).

Additional Currency Insights

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--- Content crafted by a Senior Strategist