USD/JPY Forecast: Continues to Find Support

• On Monday, the USD/JPY experienced a slight decline early in the trading session against the Japanese yen, but it quickly rebounded as buyers stepped in, allowing it to continue its recovery trend.
• The reason for this is that the Bank of Japan is still defending the 50-basis point level on the 10-year note in their country.
• Therefore, it makes sense that the market will continue to see an upward trajectory.

However, there is significant resistance near the ¥137.50 level that needs to be overcome. On the other hand, there is strong support underneath at the ¥135 level, which has seen a lot of market activity in the past, serving as both support and resistance. This means that there is a lot of "market memory" in this area. “Market memory” is also sometimes stated as “the floor becomes a ceiling, and vice versa.”

Additionally, the 50-Day EMA (Exponential Moving Average) is attempting to cross above the 200-Day EMA to form the "golden cross." This is an important indicator that long-term "buy-and-hold" traders pay close attention to. As a result, traders will continue to find reasons to go higher, and if the ¥137.50 level is breached, the market could aim for the ¥150 level.

Interest Rate Differential Doesn’t Favor the Dollar

Furthermore, it's worth noting that there was a "double bottom" near the ¥127.50 level, which was the 50% Fibonacci level from the significant move higher seen last year. Although the central bank situation has not changed, it's likely that the market will return to last year's trading levels. However, this process may not happen as quickly. This will probably be exacerbated by the fact that the trading community is trying to figure out whether the global rates will have to stay “higher for longer”, as inflation simply won’t go away, or if they will start to soften. You can quite frankly follow this almost to protect by watching the bond markets in general.

Another crucial factor to consider is that the interest rate market in America continues to show higher yields, making the so-called "carry trade" more attractive. This is not only seen against the US dollar but also many other currencies worldwide since the Bank of Japan is the only major central bank that has adopted a quantitative easing monetary policy. Consequently, the interest rate differential will continue to favor other currencies.