Market Analysis – December 18
The USD/JPY pair enters the new trading week caught between two powerful and very different narratives. On one side, US policymakers are making it clear that inflation remains an uncomfortable problem. Federal Reserve Chair Jerome Powell recently admitted that price pressures are still far too high, a message reinforced by Atlanta Fed President Raphael Bostic, who openly warned that inflation now outweighs labor-market concerns.
On the other side of the pair, the Japanese yen continues to struggle for traction, even as the Bank of Japan prepares for what could be a rare rate hike. Expectations are building around a 25-basis-point increase, but investors remain cautious, looking beyond the decision itself toward the broader path of Japan’s policy tightening—especially as the country grapples with fresh signs of economic weakness after revised GDP data confirmed a deeper contraction in the third quarter.
With the Fed sounding resolute and Japan facing slowing growth, USD/JPY finds itself at a delicate crossroads where policy signals, economic reality, and market expectations are colliding.
The USD/JPY pair has recently lost its upward momentum after peaking near the 158 level, triggering a bearish correction. Between late November and early December, the Japanese yen gained traction, likely supported by a period of US dollar weakness, which allowed the yen to strengthen against the greenback.
However, near the 154 level, bulls stepped in to defend the market, sparking a modest rebound. Price has since recovered and is now consolidating around the 155 level.
The candlestick formed during today’s trading session resembles a doji, signaling indecision among market participants. In addition, the Relative Strength Index (RSI) is hovering near the midpoint, reflecting a neutral momentum environment and reinforcing the current standoff between buyers and sellers.
USD/JPY Short-Term Trend: Indecision
Zooming in on the USD/JPY pair using the 4-hour timeframe, the market appears to be hovering near equilibrium, as traders show clear indecision around the 155 level.
On the Relative Strength Index (RSI), momentum is positioned slightly above the 50 midpoint, suggesting that bulls currently hold a modest advantage. This setup leaves room for a potential upside breakout in subsequent trading sessions, should bullish momentum continue to build.
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