The USD/JPY pair remains heavily influenced by the interest-rate differential between the US and Japan.
On Monday, the US dollar saw a slight rally during the trading session, with moving averages providing support. However, the market is currently fighting with the ¥135 level, attempting to break above it and move much higher.
The yen is a popular asset during turbulent times.
The USD/JPY pair remains heavily influenced by the interest-rate differential between the US and Japan. The Federal Reserve is highly hawkish, while the Bank of Japan is doing everything it can to fight rising interest rates with its yield curve control policy. The Bank of Japan has placed a cap on interest rates for the 10-year JGB at 50 basis points, and they buy their own bonds every time the bond market starts to sell off to keep interest rates low. Consequently, the Bank of Japan must flood the market with more Japanese yen.
In contrast, the US is pursuing a tight monetary policy that will likely stay in place for some time. Consequently, the market will continue to experience more upward pressure than anything else. However, this doesn’t necessarily mean that it will be easy, as the US dollar is struggling.
- Despite this, the USD/JPY chart indicates that the Japanese yen will continue to lose ground against the US dollar.
- The market is currently in an ascending triangle, and the top level is expected to break above the ¥138 level eventually. However, the market may remain noisy in the near term, which makes it a “buy on the dips” situation.
- As a result, it is advisable to exercise caution, wait for the market to dip, and then gradually build a larger position.
The market volatility can be stressful for traders, particularly if they are over-leveraged right away. Therefore, patience is advised when it comes to building positions in this market. Waiting for dips to build up a position to the upside is a good strategy to avoid losses.
Ultimately, the USD/JPY pair is currently in a tight monetary policy situation, with the US pursuing a tight monetary policy, while the Bank of Japan continues to fight rising interest rates with its yield curve control policy. The Japanese yen will likely continue to lose ground against the US dollar, but it’s best to exercise caution when building positions in this market. Waiting for dips to build a position is a wise strategy to avoid losses due to the market’s volatility.
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