Plunges Amid Interest Rate Volatility

One narrative is that the Federal Reserve will finally pause and take a break. However, inflation is too strong at this point to think that they won’t raise rates at all. 

• The USD/JPY initially attempted to rally during Monday’s trading session but has since plunged due to the ongoing volatility in interest rate markets worldwide.
• There are many questions about whether the Japanese will have to deal with yield curve control pressures.
• Additionally, there are many uncertainties about what the Federal Reserve will do next, given the banking bailouts over the weekend.

One narrative is that the Federal Reserve will finally pause and take a break. However, inflation is too strong at this point to think that they won’t raise rates at all. The uncertainty in the market will allow the Japanese yen to appreciate against the dollar again. On the other hand, if the Federal Reserve sounds like they are ready to continue raising rates, it could send the market much higher.

The biggest challenge right now is that a lot of this is a guessing game. Markets are always trying to get ahead of central banks, so expect a lot of noise over the next few days. Regardless of what happens next, expect a very noisy move. There is so much uncertainty out there that it’s challenging to get overly aggressive with anything.

The ¥130 level underneath should offer support, just as the ¥127.50 level will. In this scenario, a pullback showing supportive action could be an opportunity to start buying again. Eventually, people will run to the US dollar for safety, regardless of interest rate differentials, given the numerous economic concerns now. Furthermore, you need to keep in mind that the Bank of Japan continues to take her with the bond market, so a lot of this will come down to whether the 10-year JGB is approaching the crucial 50 basis point level. It is nowhere near there right now, so for the time being, that might be off the table.

In conclusion, the US dollar is facing volatility against the Japanese yen due to uncertainty in the global interest rate markets. The market is guessing what the Federal Reserve will do next, and this is creating a lot of noise in the market. It’s challenging to get overly aggressive with anything in this uncertain environment, and it’s essential to keep an eye on support and resistance levels. Eventually, people will run to the US dollar for safety, regardless of interest rate differentials, due to the numerous economic concerns globally.

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