- The yen rallied as investors scrambled for safety after news of a new free Chinese AI.
- Trump announced plans to impose tariffs on specific goods.
- Market participants eagerly awaited the FOMC policy meeting.
The USD/JPY price analysis shows the dollar regaining its footing against the yen as market participants look forward to the FOMC meeting. At the same time, Trump’s remarks on tariffs in the previous session revived the greenback.
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On Monday, the yen rallied as investors scrambled for safety after news of a free Chinese AI model shook markets. Risks appetite plunged after reports revealed that DeepSeek, a Chinese company, was introducing an AI model that uses less data and lower-cost chips.
The AI industry in the US has supported a strong rally in equities in recent years. Therefore, the threat of low cost AI in China significantly hurts the risk appetite. However, this was bullish for the yen, considered a traditional safe-haven.
Nevertheless, there was some support for the dollar when Trump announced plans to impose tariffs on steel, imported computer chips, and pharmaceuticals. As a result, demand for locally produced goods will increase, boosting the economy.
At the same time, market participants eagerly awaited the FOMC policy meeting. Economists expect the Fed to maintain interest rates. Moreover, analysts believe policymakers might maintain a cautious tone. Trump’s policies and their impact on the economy remain uncertain. Therefore, the US Central Bank might prefer a gradual approach as the economy adjusts to the new administration. Such an outlook will likely boost the dollar.
USD/JPY key events today
- US CB consumer confidence
USD/JPY technical price analysis: Bullish RSI divergence
On the technical side, the USD/JPY price has rebounded and paused at the 30-SMA resistance. Meanwhile, the RSI trades slightly above 50, showing bulls are gaining momentum. The previous downtrend started showing weakness when the price punctured the 30-SMA resistance. However, bulls were unable to break above the 156.51 resistance level. As a result, the price fell to a lower low near the 154.01 support level.
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Although price action indicated a continuation of the downtrend, the RSI made a bullish divergence, showing fading momentum. Consequently, bulls resurfaced at the 154.01 support, pushing the price to the 30-SMA.
Given the divergence, the price will likely breach the SMA resistance. However, bulls must also break above 156.51 to confirm a reversal. If this happens, USD/JPY will retest the 158.50 resistance level.
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