Continues to Find Buyers on Dips

It’s important to keep in mind that the Bank of Japan continues to use yield curve control, meaning that they have put a limit on the amount of interest that a 10-year note can give in the country, at just 50 basis points. 

• During Thursday’s trading session, the USD/JPY initially fell, but it looks like the ¥130 level is starting to show signs of support.
• This level is a large, round, psychologically significant figure and has seen some buying pressure in the past.
• Additionally, bond markets are volatile, and as this is a highly sensitive currency pair to bond markets, central bank interventions and movements over the last several months will only make it worse.

The market recently pulled back to the 50% Fibonacci retracement level around the ¥127.50 level, forming a bit of a double bottom. After such a huge move last year, it’s reasonable to assume that some longer-term investors will be willing to “buy the dip.”

Moving higher, the ¥132.50 level is an area where there has been some action in the past, making it a potential target for buyers. After that, the 50-Day EMA sits near the ¥134 level, as does the 200-Day EMA. This area could cause some noise, but eventually, the market could even go to the ¥136.50 level, which was the latest swing high.

It’s important to keep in mind that the Bank of Japan continues to use yield curve control, meaning that they have put a limit on the amount of interest that a 10-year note can give in the country, at just 50 basis points. The only way to fight that is to buy unlimited bonds if needed, meaning that they will be printing Japanese yen every time the market gets close to that area. This is what happened last year, and the market is still during that huge move.

Overall, the market continues to be very noisy, so it’s essential to be patient with trading positions. The current situation with the US dollar against the Japanese yen highlights the importance of monitoring bond markets and central bank interventions, as they can significantly impact currency pair fluctuations. The one thing that you need to do is be cautious about getting overly aggressive in either direction until the market decides that it’s ready to start an impulsive move. Right now, it looks like we are not, so I would not necessarily throw huge positions out there. If we do break down below that ¥130 level, the bottom is going to fall out of this market.

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