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Amid a Bearish Correction Ahead

I still prefer to buy the currency pair from every bearish level, taking into account that the movement of the currency pair in one direction will be a reaction to the results of the important US economic data this week. 

  • The USD/JPY was negatively affected by fears about the future of the US banking system.
  • The bears helped push the price of the USD/JPY currency pair to move towards the 133.01 support level and settle around the 133.60 level at the time of writing the analysis, ahead of the announcement of a package of important and influential US economic data.
  • All in all, First Republic Bank’s continued struggles raise the possibility that the Federal Reserve may decide to halt US interest rate increases next week, although investors still see it moving forward.

The yen is a popular asset during turbulent times.

 In this regard, Krishna Guha and Peter Williams of Evercore ESI and Peter Williams wrote in a note to clients: “We cannot rule out the possibility that developments around the First Republic will unfold in a way that will lead the FOMC to skip May while pointing to an increase in June. “.

Fed policymakers, who are experiencing a media hiatus ahead of the FOMC meeting on May 2-3, have signaled they are on track to raise interest rates by a quarter point and signal a possible pause in June. Investors are pricing in more than three-quarters of the upside potential, down from 90% last week. Analysts added that: “The renewed stress raises some questions about the notion that the acute phase of bank stress is finally over while highlighting uncertainty and possibly the physical magnitude of the upcoming credit tightening.”

The US Federal Reserve officials who spoke last week were relieved that there was no turmoil in the banking sector after the collapse of Silicon Valley last month. But many also warned that tightening lending standards due to the turmoil could weigh on spending and growth. This will likely reduce the need for additional rate increases by doing their job effectively.

And that view may need updating after First Republic shares fell this week to a record low.

Former Fed Governor Lawrence Meyer and colleagues at research firm Monetary Policy Analytics wrote that: “We didn’t think the onset of pressure was likely to prevent the FOMC from hiking in March unless markets were in a mess very close to the decision announcement. “. They added: “In this case, the barrier to delaying a rally for such a consideration in risk management is, if anything, higher.”

According to the performance on the daily chart below, the price of the USD/JPY currency pair is exposed to a first exit from the bullish trend. The bears’ control may increase if it moves towards the support levels 132.50 and 131.80, respectively. From the last level and lower than it, it is better to think about buying the currency pair from new.

On the other hand, and for the same period of time, the return of the USD/JPY currency pair to the 135.20 resistance level will be important for the bulls to control the trend. I still prefer to buy the currency pair from every bearish level, taking into account that the movement of the currency pair in one direction will be a reaction to the results of the important US economic data this week. Led by the announcement of the US economic growth rate today and then the US Federal Reserve’s preferred inflation reading tomorrow.

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