Overall, the market’s volatility is tied to the Japanese bond market’s yield curve control policy, which aims to keep the 10-year yield below 50 basis points.
- The USD/JPY pair had a volatile trading session on Tuesday, as the market initially pulled back but found buyers at the ¥130 level.
- This level has shown significant support as it was tested a couple of times and also had a hammer formation from Friday.
- Resistance is expected at the ¥132.50 level, which has been significant in the past and could create a level of exhaustion if broken above.
The yen is a popular asset during turbulent times.
If the market breaks above ¥132.50, then the 50-Day EMA at the ¥133.50 level and the 200-Day EMA just above there could offer further resistance. Conversely, if the market were to pull back from the upside, then buyers are expected to come in at the ¥127.50 level, which is a large, round, and psychologically significant figure, and has shown a double bottom recently. This level is also the 50% Fibonacci level from last year’s major move, so it has a lot of significance as a hard floor in the market.
However, if the market were to break below ¥127.50, it could lead to a major fall in the market and send the pair much lower. Therefore, traders need to keep an eye on this level as a critical point in the market. The market is likely to be choppy even if it does rally, and traders should be prepared for this scenario. Overall, the market’s volatility is tied to the Japanese bond market’s yield curve control policy, which aims to keep the 10-year yield below 50 basis points.
The market staying above the 50% Fibonacci level is of course something to pay close attention to, but I don’t necessarily think that we have huge moves in one direction or the other with any type of clarity. We will more likely than not continue to look at this through the prism of short-term trading, buying dips as they occur. The pair will continue to move back and forth with bond markets, so you will need to pay attention to the 10-year JGB and whether or not it is getting close to that 50-basis points level. Furthermore, as bonds around the world show higher rates, that also can influence the Japanese yen to lose value as well. With this, I am bullish, but I also recognize that there are a lot of dreamers out there that believe the Federal Reserve is going to acquiesce. Most of this is probably because a lot of them need them too.