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Abstract: The USDJPY faced some selling pressure for the second consecutive day on Wednesday, and fell below the weekly trading range in the New York session, entering a downward trend.

Fundamentals

The USDJPY fell 55 points in a short time after the announcement of the PMI of the Markit manufacturing industry in August and fell 0.70% in the day, and now it is reported at 145.16.

The USDJPY may fall further in the short term. As we emphasized, although the exchange rate started a second rebound at 144.92, the subsequent upward momentum hardly increased, and it just fell below the previous low of 144.92, and it is expected to be even weaker in the future. (Favorable to the yen)

The bigger catalyst for the JPY's rise may be the sharp adjustment of risky assets. It seems that the Japanese authorities have not taken any measures for the time being, and do not want to confront the USDJPY with the U.S. Treasury Securities yield pushing up. Foreign exchange intervention may not be imminent, and the bigger trigger for the rebound of the JPY may be the sharp correction of risky assets driven by the soaring yield of U.S. Treasury Securities.

Japanese Finance Minister Shun'ichi Suzuki said last week that the authorities would respond appropriately to "excessive fluctuations" in the exchange rate, but other than that, officials have been silent on foreign exchange recently. Nevertheless, market participants understand that if the USD approaches the level of 150.00 (the spot exchange rate peaked at 151.95 last October), an intervention will be a high-probability event.

If JPY defense is the primary task, then from the perspective of policy effectiveness, direct foreign exchange intervention and allowing a slightly higher domestic rate of return will be the best choice at the same time (or even similar) to the decline in U.S. Treasury Securities yields (or some dovish hints from Fed policymakers).

The soaring real yield in the U.S. has put upward pressure on the USD. The real yield of 10-year U.S. Treasury Securities briefly rose above 2% yesterday, the first time since 2009. At the upcoming Jackson Hole Economic Symposium, the threat of raising interest rates alone should be enough to keep the short-term yield in the U.S. rising. For the JPY, the CPI data released on Friday may make the call for the Bank of Japan (BOJ) to end the yield curve control policy even louder. But so far, the BOJ has turned a deaf ear to these calls.

Technical Analysis

Since November last year, the USDJPY has broken through the threshold of 146.40 twice; At present, there has been a negative reversal trend.

The Relative Strength Index turned to the downside after peaking near the overbought threshold of 70, while the MACD slowed down in the positive territory. Stochastic witnessed some sustained buying interest as it reversed to the upside after falling back below the overbought level of 80.

The bears have broken below 144.92 and are expected to initiate a new bearish cycle. Some traders may even wait until it breaks below the 20-day exponential moving average (EMA) of 144.30, which helped it go higher earlier this month. The 23.6% Fibonacci retracement of the latest uptrend is also located in the same spot. Therefore, a significantly lower closing price is expected to trigger a quick decline toward the Fibonacci 38.2% position at 143.00. If bearish pressure continues below the 50-day SMA, a decline to between 141.50 and 140.80 is likely.

Overall, after a six-week rally, the USDJPY bulls are facing a double-top situation before the Jackson Hole Economic Symposium on Friday. Although the bearish pattern shows some caution, the bears have fallen below the previous low, which means that the downward pattern will continue until the integer threshold of 140.00 is tested. It is recommended to go short at the highs.

Trading Recommendations

Trading direction: Short

Entry price: 144.70

Target price: 140.00

Stop loss: 146.90

Deadline: 2023-09-06 23:55:00

Support: 144.43, 143.87, 143.24

Resistance: 145.58, 146.15, 146.40