In summary, the USD/JPY pair is experiencing high volatility due to the Bank of Japan’s fight against rising interest rates on the 10-year JGB.
- The US dollar experienced some gains against the Japanese yen during the Wednesday session, but ultimately gave back a significant portion of that gain due to high volatility.
- The situation with interest rates is also important in understanding the current state of the USD/JPY currency pair. The Bank of Japan is constantly fighting against rising interest rates against the 10-year JGB, with a cap of 50 basis points on the 10-year note.
- Whenever the interest rates reach that level, the Bank of Japan will step in to start printing more yen so that they can purchase more bonds. This will result in more volatile behavior for this pair, so it is important to pay attention to these factors.
The yen is a popular asset during turbulent times.
Looking at the technical analysis, the 200-Day EMA provides support near the ¥133.50 level with the 50-Day EMA underneath. If the 50-Day EMA is ready to go higher, then it is likely that a floor will be established underneath, making this a “buy on the dip” market. However, the ¥135 level is likely to offer a lot of resistance, so it is unlikely that the market will easily slice through it.
Additionally, the bond markets around the world are affecting the USD/JPY pair due to traders betting on the Federal Reserve. The bond markets have been volatile, and this has contributed to the confusing state of this currency pair. Moreover, the technical analysis shows that the 50% Fibonacci level has served as a springboard, with a formation of a double bottom. If the market breaks down below this level, it could lead to a negative turn of events.
In summary, the USD/JPY pair is experiencing high volatility due to the Bank of Japan’s fight against rising interest rates on the 10-year JGB. Technical analysis suggests that the 200-Day EMA and the 50-Day EMA provide support levels, but the resistance at the ¥135 level will be a major challenge. With the bond markets around the world contributing to the pair’s volatility, traders need to pay close attention to economic events that could affect this pair in the short term. Overall, the current state of the USD/JPY pair is best characterized by confusing volatility.
Potential signal: The pair continues to see a lot of buying on the dip, and it now looks like the 135 level above is a target. If interest rates rise, this should only continue to push USD/JPY higher. At this point, the buyers are trying to take control. Going long is possible here, but if the market were to drop below 133.80 (200-Day EMA) level, then it would be advisable to exit any long position. If the market gets above the 135 level on a 4 hour chart, I will add 20% to my position and aim for the 138 level.