USD/JPY rose on Monday, negating the initial negative cue from Friday’s strong upside rejection marked by a long upper shadow and a potential bull-trap near the 157.52 Fib barrier. The rebound tested and cracked 157.52, which corresponds to the 61.8% retracement of the 160.39/152.88 bear-leg and aligns with the 30DMA. A clear break would open scope for a renewed push towards the 200DMA at 158.40, with further resistance seen at 158.05 and 158.62.
Daily studies have improved, with RSI moving above the neutrality zone and the 10DMA and 20DMA in a bullish configuration, reinforced by a weekly bullish engulfing pattern. However, overbought stochastic readings and 14-d momentum remaining in negative territory point to potential headwinds. On the downside, the 50% retracement at 156.64, bolstered by the 20DMA, has turned into support, alongside levels at 157.00, 155.75 and 155.28. The yen remained on the back foot following the BOJ’s dovish hike last week and the US central bank’s hawkish stance after its first rate rise since 2023 and guidance towards a possible tightening cycle.
Trading Outlook and Technical Levels
We suggest derivative traders prepare for a continued upward push in USD/JPY over the coming weeks as bulls regain their footing. The pair recently climbed past the key support level at 156.64 and is now testing the crucial Fibonacci barrier at 157.52. If we see a clean break above this level, it will likely clear the path toward the 200-day moving average at 158.40.
To back this outlook, recent market data shows the Japanese Yen has weakened by roughly 3% against the US Dollar over the last few weeks. Daily technical indicators are turning highly supportive, with the Relative Strength Index rising back above the 50 neutrality mark. Additionally, a strong weekly bullish engulfing pattern suggests that buying pressure is rapidly intensifying.
Options Strategy and Fundamental Drivers
For options traders, we favor buying short-term call options targeting the 158.40 to 158.62 resistance zone. To manage risk, we should place stop-loss triggers or unwind long positions if the pair falls back below the key support at 156.64. While overbought stochastic readings warn of brief pullbacks, the dominant upward momentum is expected to shield the downside.
This bullish bias is fundamentally supported by the Bank of Japan’s recent dovish rate hike, which did little to rescue the Yen. At the same time, the Federal Reserve’s hawkish stance and its decision to lift rates for the first time since 2023 have revitalized the greenback. This widening yield gap makes long-dollar derivative strategies highly attractive for the weeks ahead.
