- The USD/JPY pair displayed signs of a modest rally during Tuesday's trading session, navigating through the persistent turbulence that has become characteristic of recent market behavior.
- In this context, the prevailing market focus continues to revolve around the interest-rate differential dynamics.
- Furthermore, the immovable stance of the Bank of Japan regarding its monetary policy leaves no room for speculation, reinforcing the prospect of an eventual upward breakout.
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It is noteworthy that the market consistently attracts buyers whenever the US dollar experiences a slight weakening trend, a trend that extends beyond the S&P 500 and encompasses various markets. Should the market manage to surpass recent highs, it is likely to embark on a trajectory toward the ¥155 level. Beneath the surface, a robust layer of support is evident in the form of the ascending 50-Day EMA and the ¥147.80 level. That being said, I think this is a market that is much less technical at the moment, and much more fundamentally driven due to the divergence of the two central banks. As long as the Japanese refuse to tighten monetary policy, this will be the result.
Volatility Ahead
While the path forward appears promising, it is essential to acknowledge the likelihood of significant market noise within this particular vicinity. A salient point to consider is the substantial shooting star candlestick formation witnessed in the weekly chart last week. This development was partly fueled by the market's reaction to speculations surrounding the Federal Reserve's potential retreat from quantitative tightening. In the grand scheme of things, this market is poised to experience periodic dips, which should, in turn, attract an abundance of buyers. Market participants are driven by the allure of potential daily returns.
All factors considered, the prospect of shorting this market is not appealing, at least not until a decisive breach of the ¥147.80 level occurs. Even in such an event, a prudent approach would entail closely monitoring the broader fundamentals and the overall market sentiment. While the possibility of a significant correction looms, it is essential to recognize that it would likely evolve into an attractive buying opportunity in the longer run. Expectations of heightened volatility are valid, but the prevailing sentiment suggests that the upward pressure is poised to outweigh any downward forces in the foreseeable future.
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