- There is a good chance that the Japanese authorities have intervened again to support the yen.
- Powell argued that the Fed is still trying to cut interest rates.
- The difference in long-term government bond yields between Japan and the US is 376 basis points.
The USD/JPI forecast points to a downtrend as the yen strengthens following speculation of another Bank of Japan intervention. Meanwhile, the dollar weakened as Fed Chairman Powell’s tone was less hawkish than expected.
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The yen had another sharp rally on Wednesday evening, sending the USD/JPY pair significantly lower. There is a good chance that the Japanese authorities have intervened again to support their currency. However, they refused to comment on this.
Moreover, the BoJ intervention had a more significant impact since it came when the dollar was weak. Specifically, the Fed kept rates on hold and signaled a delay in rate cuts due to recent higher-than-expected inflation numbers. However, Powell argued that the central bank still wants to cut interest rates. This eliminated all fears in the market that the central bank would indicate possible increases in interest rates.
However, despite the yen’s recent strength, fundamentals still point to further declines. In particular, the gap in long-term government bond yields between Japan and the US is 376 basis points. As long as this gap remains wide, there will always be a reason to sell the yen and buy the dollar. However, the Bank of Japan is now focused on $160.00 as its line in the sand, making it strong resistance.
Meanwhile, mixed reports from the US showed a stronger-than-expected increase in employment and a drop in job vacancies. Investors now await the NFP report on Friday.
USD/JPI Key Events Today
USD/JPI Technical Forecast: Bears take control after momentum builds
On the technical side, the price of USD/JPI has broken below the 30-SMA, indicating a change in sentiment to the downside. The first indication of bearish strength came when price made a bearish candle at the key 160.00 level.
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The decline was halted at the 30-SMA, where the bulls tried to continue the uptrend. However, they encountered resistance at the key level of 158.00. This resistance allowed the bears to break through the 30-SMA support barrier and retest the 154.01 support level. With this new sentiment, the price is trading in a bearish channel. Therefore, the decline is likely to continue with the next target at 151.01.
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