USD/JPY Forecast: Limited Upside Potential Ahead of Key Central Bank Events

USD/JPY Forecast: Limited Upside Potential Ahead of Key Central Bank Events

The USD/JPY pair began the new week on a positive note, attracting fresh buyers during the Asian session and rising to the 154.35 region. This increase can be attributed to some repositioning trades ahead of the upcoming central bank events this week.

A positive risk tone in the market has led to a decrease in demand for the safe-haven Japanese Yen (JPY), lending some support to the major currency pairs. The strong bullish sentiment surrounding global equity markets has also contributed to the positive traction of the USD/JPY pair. However, despite these factors, the upside potential for the pair seems limited.

Traders are now eagerly awaiting the crucial policy decisions from the Bank of Japan (BoJ) and the Federal Reserve (Fed) on Wednesday. The BoJ is expected to reduce bond buying and potentially raise interest rates, while the Fed is likely to begin an easing cycle in September with multiple interest rate cuts by the end of the year. These divergent policy expectations are hindering any further appreciating move for the USD/JPY pair.

From a technical standpoint, last week’s breakdown through the 100-day Simple Moving Average (SMA) was seen as a bearish signal. However, the slightly oversold Relative Strength Index (RSI) on the daily chart prompted some short-covering, indicating a potential reversal in trend. Traders will be closely monitoring these technical indicators alongside the central bank decisions to gauge the future direction of the USD/JPY pair.

While the USD/JPY pair has started the week on a positive note, the upside potential seems limited due to the upcoming central bank events and divergent policy expectations. Traders are advised to exercise caution and closely watch market sentiment and technical indicators to make informed trading decisions.

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