Chương 36 06/21 USDJPY: Bank of Japan's Current Intervention in the Market Is Less Risky and Might Continue to
Abstract: The gap between the ultra-loose monetary policy of the Bank of Japan (BOJ) and the European and U.S. central banks is still very large, and the JPY is once again caught in this dilemma.
Fundamentals
Data show that Deutsche Bank's Japanese yen trade-weighted index (an indicator to measure the strength of the JPY against major global currencies) closed at the lowest level in more than 20 years on Monday, which will increase people's expectations that the Japanese authorities will at least make more verbal interventions to help stabilize the JPY exchange rate.
For now, however, it is unlikely that the Japanese authorities will actually intervene now, but the risk of intervention could become greater when the USDJPY quickly rises above 145. 00 and 150.00.
The USDJPY bulls holding 141.02 and the 50-day SMA at 140.74 would support a breakout from 142.063 to 142.676. However, a break below 141.02 and the 50-day SMA at 140.74 would put the bears in view at the 140.598 level. And a break below the 50-day SMA would send a bearish signal.
On the other hand, USDJPY bulls need to break the 141.637 pivot point to target the first major resistance at 142.063 and Tuesday's high at 142.251. A long close back at 142.00 would signal continued bullishness for the USDJPY.
If the rally continues, bulls may test the second major resistance at 142.676. The third major resistance is at 143.715.
Technical Analysis
The USDJPY continues to come under selling pressure after hitting a seven-month high of 142.24 earlier today. Cautionary sentiment may emerge as the USDJPY approaches the 61.8% Fibonacci retracement of the October 2022-January 2023 downtrend at 142.49.
However, subsequently, while the stochastic shows further declines in the near term as it has entered a sharp downside reversal towards the oversold zone below 20.0, the RSI shows signs of stabilization above the neutral level of 50.
The price movement highlights the latter scenario in the 4H timeframe, as the 20-period SMA has stepped in to defend the USDJPY. If it loses, the 50-period SMA could be the next game in town around 140.35. A little lower is the more critical support area around 140.10. Meanwhile, the lower Bollinger band has flattened, the same level where the upper Bollinger band repeatedly limited prices in June. If the bears can break through this area, they will almost certainly target the 200-period SMA next.
However, if the USDJPY manages to bounce off the 20-period SMA, it could make another attempt to break the 61.8% Fibonacci retracement and then clear the way for the 144.00 and 145.00 levels.
Overall, the very short-term negative bias could be temporary if the 20-period SMA holds, but a break below it would fuel bearish forces, especially if prices also fall below 140.10. However, as long as the USDJPY trades above its 200-period SMA, the medium-term bullish outlook should remain intact. It is recommended to buy the dips.
Trading Recommendations
Trading direction: Long
Entry price: 141.90
Target price: 145.00
Stop loss: 138.80
Deadline: 2023-07-05 23:55:00
Support 141.90, 141.09, 140.31
Resistance: 142.50, 143.45, 145.00
