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Better to Buy USDJPY as Yen Has Plunged Over 190 Points
Summary:
The yen's recent strength has been driven by various factors, so there is a potential rebound following its sharp decline.
CLOSED
149.419
ENTRY
151.894
TGT
147.730
SL
160.006 +0.078 +0.05%
1689
Points
Loss
147.730
SL
147.729
CLOSING
149.419
ENTRY
151.894
TGT
Fundamentals
The Bank of Japan (BOJ) unexpectedly raised interest rates by 15 basis points in its latest policy meeting. The market reaction was muted at first, but the USD/JPY pair began to be volatile soon, with swings reaching up to 220 points. The pair fell by over 360 points, currently trading around 150.152.
This outcome was surprising but also anticipated. It was surprising because the market broadly anticipated the BOJ to hold rates steady. Yet, it was expected because major outlets like NHK, Nikkei, and Jiji Press had reported that the BOJ was considering a rate hike. Notably, the rate decision announcement was delayed by nearly an hour, longer than usual under Governor Kazuo Ueda, suggesting significant deliberations. During this time, the BOJ website experienced heavy traffic, likely from investors seeking clues.
Following the announcement of a 15bp rate increase, the USD/JPY pair plummeted. However, this sharp decline was caused by more than just the BOJ rate decision.
Before the rate decision announcement, Japan's new top currency diplomat Atsushi Mimura stated that the recent yen weakness was more harmful than beneficial to Japan's economy and hinted at potential intervention to curb speculative behavior.
Additionally, geopolitical tensions added to the yen's volatility. Israel conducted a targeted strike on the southern suburbs of Beirut, killing Hezbollah commander Fuad Shukr. Israel blamed this commander for a recent attack on Majdal Shams in the Israel-occupied Golan Heights. Furthermore, Hamas leader Ismail Haniyeh was killed, a significant blow to the organization but not unprecedented, suggesting continued conflict.
The yen's drop likely involved Japanese government intervention and risk-aversion resulting from geopolitical tensions. The extent of each factor's influence is unknown, making shorting the yen risky.
The current 0.25% interest rate just indicates a reduction in monetary easing rather than a shift to tightening. Such a rate is relatively low in Japan's current economic situation. Another rate hike is unlikely until year-end or early next year. Therefore, the impact of this hike on the yen might be limited, leaving room for a USD/JPY rebound.
Technical Analysis
In the daily chart, USD/JPY has reached the upper boundary of the descending channel, a critical point previously broken during the pair's rally. If the price falls below this line again, USD/JPY could drop further to 146.618. Conversely, a rebound is possible. A break above 151.894 would signal a halt to the decline.
The Ichimoku Cloud shows the baseline and conversion line in a clear downtrend, with the price significantly distant from the two, indicating strong but diminishing bearish momentum. A short-term long position may be considered.
Trading Recommendations
Trading Direction: Buy
Entry Price: 149.419
Target Price: 151.894
Stop Loss: 147.730
Support: 149.419, 146.280
Resistance: 151.894, 157.683
Risk Warnings and Investment Disclaimers
You understand and acknowledge that there is a high degree of risk involved in trading with strategies. Following any strategies or investment methodologies is the potential for loss. The content on the site is being provided by our contributors and analysts for information purposes only. You alone are solely responsible for determining whether any trading assets, or securities, or strategy, or any other product is suitable for you based on your investment objectives and financial situation.
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