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USD/JPY Forecast: Clinging onto a Trendline Against Yen

By Christopher Lewis
Christopher Lewis has been trading Forex and has over 20 years experience in financial markets. Chris has been a regular contributor to Daily Forex since the early days of the site. He writes about Forex for several online publications, including FX Empire, Investing.com, and his own site, aptly named The Trader Guy. Chris favours technical analysis methods to identify his trades and likes to trade equity indices and commodities as well as Forex. He favours a longer-term trading style, and his trades often last for days or weeks.

The question now is whether they can continue to see a reason to slow down rates, which would drive the value of the US dollar down, thereby decreasing the pressure on the Bank of Japan, or if inflation continues to be overly strong, which means that the Federal Reserve will be tight for longer.

  • The USD/JPY has fallen a bit during the trading session on Tuesday, as we continue to hang on to the same trendline we have been up against for a while.
  • The market is hanging around the crucial ¥138 level, which extends down to the ¥137.50 level as support.
  • If we break through all that, then we have the 200-Day EMA, which is right around the ¥135 level. It is at that point that I think a move below that level breaks down and it sends the market much lower.

As we are between the 50-Day EMA and the 200-Day EMA, you quite often get a lot of noisy behavior before the market squeezes in one direction or another. The market breaking above the 50-Day EMA would continue the bigger uptrend, perhaps trying to get back to the ¥150 level. The market has been in an uptrend for ages due to the Bank of Japan doing yield curve control, which is when they buy bonds to keep interest rates down. To buy bonds, they print more currency. In other words, the market has been flooded with the Japanese yen this year.

The market is Looking for Reasons to Loosen Up

Whether or not this continues remains to be seen, and of course, there is a lot on the other side that could put just the market around. A lot of traders are focusing on the Federal Reserve and the fact that they may be getting ready to slow down the interest rate hikes, as there has been so much in the way of tightening already. The question now is whether they can continue to see a reason to slow down rates, which would drive the value of the US dollar down, thereby decreasing the pressure on the Bank of Japan, or if inflation continues to be overly strong, which means that the Federal Reserve will be tight for longer.

I suspect that will probably be the case, but right now the market is still looking for some type of reason to loosen up. With the Core PCE numbers coming out on Thursday and the jobs number on Friday, expect more volatility as we get later in the week, as it will give us an idea as to what the Federal Reserve must do over the next several weeks.

USD/JPY

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Christopher Lewis
About Christopher Lewis
Christopher Lewis has been trading Forex and has over 20 years experience in financial markets. Chris has been a regular contributor to Daily Forex since the early days of the site. He writes about Forex for several online publications, including FX Empire, Investing.com, and his own site, aptly named The Trader Guy. Chris favours technical analysis methods to identify his trades and likes to trade equity indices and commodities as well as Forex. He favours a longer-term trading style, and his trades often last for days or weeks.
 

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