USDJPY Uptrend Accelerates Ahead of the US Presidential Elections

This week features several high-impact economic events that could influence market dynamics, including rate decisions and manufacturing data across major economies like Canada, Europe, the UK, and the US These events, particularly the release of PMI figures and retail sales data, will play a pivotal role in shaping market sentiment, especially as global inflation and growth concerns persist.
Meanwhile, USDJPY has continued its upward trend since mid-September, driven by key technical patterns and broader US dollar strength. As the market digests shifting Federal Reserve expectations and strong US Treasury yields, traders are closely watching the pair’s resistance and support levels for further directional clues.

Wednesday 16:45 (GMT+3) – Canada: Overnight Rate (CAD)
Thursday 11:00 am (GMT+3) – Europe: Flash Manufacturing PMI (EUR)
Thursday 11:00 am (GMT+3) – Europe: Flash Services PMI (EUR)
Thursday 11:30 am (GMT+3) – UK: Flash Manufacturing PMI (GBP)
Thursday 11:30 am (GMT+3) – UK: Flash Services PMI (GBP)
Thursday 16:45 (GMT+3) – USA: Flash Manufacturing PMI (USD)
Thursday 16:45 (GMT+3) – USA: Flash Services PMI (USD)
Friday 15:30 (GMT+3) – Canada: Retail Sales m/m (CAD)

Since reaching a low of 139.568 on September 16, USDJPY demonstrated a clear upward trend, marked by a confluence of technical reversal patterns. Specifically, the initial signal was indicated by a Hammer Japanese candlestick reversal pattern, which put an end to the downtrend and marked the beginning of a new trend in the opposite direction. The upward momentum has been further validated by a bullish reversal pattern known as a failure swing in technical analysis. Particularly, the trough at 141.632 did not break below the prior trough, and prices subsequently surpassed the peak at 146.482, setting the stage for continued gains.
The rally has been further supported by the formation of a “Golden Cross” double crossover, where the 20-period Exponential Moving Average (EMA) crossed above the 50-period EMA, signaling strong upward momentum.
Technical indicators also affirm the currency pair’s bullish outlook. Prices remain above both the 20- and 50-period EMAs, reinforcing the strength of the rally. Additionally, the Momentum oscillator has moved above the 100 mark, and the Relative Strength Index (RSI) has climbed above the 50 level, both of which suggest continued positive momentum in the near term.
On closer inspection, the negative divergence between the price and the Momentum oscillator alerts for a potential pause or correction in the near term.

Should the buyers maintain market control, traders may direct their attention toward the four potential resistance levels below:
151.931: The initial resistance is estimated at 151.931, corresponding to the daily low marked on July 25.
154.329: The second price target is seen at 154.329, aligning with the 261.8% Fibonacci Extension drawn from the swing high of 146.482 to the swing low of 141.632.
155.209: The third price objective is projected at 155.209, representing the peak from July 30.
162.177: An additional price target is set at 162.177, reflecting the 423.6% Fibonacci Extension drawn from the swing high of 146.482 to the swing low of 141.632.

Should the sellers take market control, traders may consider the four potential support levels listed below:
146.482: The initial support level is identified at 146.482, representing the swing high from September 27.
141.632: The second support level is seen at 141.632, representing the swing low marked on September 30.
139.568: The third support level is positioned at 139.568, reflecting the trough formed on September 16.
137.231: An additional downside target is noted at 137.231, corresponding to a weekly low.

The US dollar strengthened as shifting expectations around Federal Reserve policy reduced the likelihood of aggressive interest rate cuts. Investors have scaled back bets on rapid rate reductions, driven by signs of continued US economic strength and concerns about rising fiscal deficits following the presidential election. This hawkish outlook from the Fed, coupled with 10-year Treasury yields rising above 4.2%, has boosted the dollar’s appeal. Additionally, the IMF’s revisions, highlighting US economic resilience amid global uncertainty, further supported the dollar’s dominance against major currencies.
The dollar-yen pair’s movement has been largely influenced by US data and Fed commentary, with heightened volatility expected leading up to the US elections.

As the week progresses, high-impact economic events, particularly rate decisions and PMI data, will be crucial in shaping market sentiment amid ongoing concerns about inflation and global growth. USDJPY’s continued uptrend, supported by strong technical patterns and a resilient US dollar, remains a focal point for traders. While the fundamentals favor further dollar strength, caution is warranted due to a negative divergence. Traders will closely monitor key resistance and support levels and upcoming US data to assess the longevity of the dollar’s upward momentum, especially with heightened volatility expected ahead of the US elections.