Bab 45 09/18 USDJPY: Limited Room for Pullbacks in the Market, Buy the Dips Preferred
Summary: The USDJPY continued its retracement during the Monday New York session. Market caution prevails as significant events from the Fed and the Bank of Japan are set to unfold this week. The major trading price hovers near 147.6, marking a 0.13% decline for the day.
Fundamentals
The prospect of unchanged interest rates in the long term is weighing down US rates and volatility across markets, amplifying arbitrage trading strategies. Additionally, with WTI crude oil prices exceeding $90 per barrel (USD and WTI exhibit a positive correlation as risk assets), the bullish sentiment for the USDJPY pair remains intact. This may lead the market to anticipate no major changes in the policy from the Bank of Japan this Friday, with potential actions more likely to be taken when new economic forecasts are released at the end of October.
Currently, for Japanese authorities to truly address the issue of a weak yen, they must change the policies causing the yen's depreciation since the interventions by the BoJ have proven ineffective. This is why the BoJ may consider raising interest rates from the negative range, relinquishing yield curve control, and discontinuing bond purchases. If this were to happen, the impact on the yen should be significantly greater than the previous futile attempts at currency intervention. The current monetary policy of the BoJ has pushed the yen's trade-weighted exchange rate to levels near 50-year lows. It's an effective form of monetary easing that will continue to support inflation above the central bank's target.
Finally, the BoJ adjusted its yield curve control policy in July and is currently expected to maintain a wait-and-see approach while assessing the effects of previous actions. Considering this, the BoJ's cautious stance on Friday and the hawkish Fed on Wednesday may provide further momentum for an upward move in the USDJPY pair as the yield differential between the US and Japan continues to widen.
Technical Analysis
After completing a gap fill last Friday, the USDJPY is currently in a retracement phase, with expectations of further upward movement in the near term, potentially surpassing the uptrend line drawn from the low point on March 24. The asset is currently trading around 147.60, and further upward momentum may test the 148.90 range, with a breakthrough in this area potentially paving the way for the peak around October 21 (around 151.85).
However, before testing the 148.90 range, the market may need to retreat further to the 147.00-146.60 range to seek rebound momentum. In terms of trading strategy, buying the dips is recommended.
Trading Recommendations
Trading Direction: Long
Entry Price: 147.65
Target Price: 148.90
Stop Loss: 144.40
Valid Until: 2023-10-02 23:55:00
Support: 146.99, 146.60, 145.69
Resistance: 147.95, 148.20, 148.84
