USD/JPY has surged following the Federal Reserve’s rate decision, climbing over 6.1% from its December low. The pair is now testing a critical resistance zone, signaling a potential inflection point as the year draws to a close.

Technical Overview

The Japanese yen is on track for its third consecutive weekly decline against the US dollar, with USD/JPY hitting multi-month highs. This rally brings the pair into a significant pivot zone, defined by the 157.16/89 resistance region, which includes the 78.6% retracement of the yearly range and the July breakdown close. The convergence of the 2020 parallel further underscores the importance of this threshold.

Support Levels:

• Initial weekly support: 151.90-152 (1986 low / 1998 & 2022 high)
• Secondary support: ~151.16 (52-week moving average)
• Broader bullish invalidation: 148.73-149.60 (2022 high-close / 2023 high-week close)
• Key bearish level: 146.29 (61.8% retracement)

Resistance Levels:

• Immediate resistance: 157.16/89
• Secondary resistance: ~159.50 (upper parallel)
• Long-term resistance: 160.40/73 (1990 high / 2024 high-week close)
• Multi-year breakout target: 161.95

Recent Price Action

The recovery in USD/JPY builds on its September uptrend, rebounding sharply from an intraday low of 148.64 earlier this month. The rally has been bolstered by the Fed’s hawkish tone, which has reignited bullish sentiment in the dollar. However, the current resistance zone at 157.16/89 poses a significant challenge, and traders are closely watching for a potential reaction at this level.

Trading Strategy

For traders, the current setup suggests reducing long exposure and raising protective stops as USD/JPY approaches the 157.16/89 pivot zone. If the pair fails to break this resistance, a pullback toward the 151.90-152 support area could be expected. Conversely, a decisive close above this resistance would mark the resumption of the September uptrend, targeting the upper parallel near 159.50 and possibly the 161.95 multi-year high.

Key Economic Events to Watch

• US Core PCE Inflation Data (December 21): Expected to show a slight uptick to 2.9% year-over-year for November. This data will be critical in shaping near-term market sentiment.
• Other Notable Events:
  • Japan CPI (December 20)
  • US Consumer Confidence
  • FOMC Member Daly’s Speech

Bottom Line

The USD/JPY rally is approaching a key technical threshold, with the 157.16/89 resistance level acting as a critical inflection point. The broader outlook remains bullish, but traders should remain cautious as market dynamics around this level could dictate the pair’s trajectory into 2024. A close above this pivot zone would signal further upside, while a failure to breach it could open the door for a corrective pullback.