- The USD/JPY showed a slight retreat during Wednesday's trading session as market participants await the Federal Reserve statement.
- The market seems to be making an attempt to ascend above the significant ¥140 level—a round figure with a profound psychological impact that invariably commands the attention of numerous traders.
- Consequently, a considerable amount of volatility and "noisy" behavior can be anticipated around this zone.
Analysis of the current chart reveals the formation of a bullish flag, an intriguing development that warrants close observation. Should the market break to the upside, the projected "measured move" suggests a target at the ¥148 level. This market's fluctuations can largely be attributed to the significant interest rate differential between the Federal Reserve and the Bank of Japan, a gap so wide that it could metaphorically accommodate a large vehicle. While there is a reasonable expectation that the Federal Reserve may hold rates steady in the upcoming announcement, the yawning chasm between the two central banks' policies will persist.
Volatility Ahead
Looking forward, the market appears predisposed to maintain its bullish trend. Consequently, any dips in price can be perceived as potential buying opportunities. The ¥138 level below is anticipated to offer substantial support, given its history as a previous resistance barrier for the well-recognized ascending triangle. This level marked the inception of the latest reversal in this currency pair. Even if the Federal Reserve refrains from hiking interest rates this Wednesday, it is likely to maintain a tight monetary policy for an extended period.
This market will undoubtedly continue to exhibit considerable volatility, but this is not an unfamiliar scenario for experienced traders of the Yen. Regardless of these fluctuations, the upward trajectory remains the primary focus until there is a fundamental shift in market dynamics, an event that seems unlikely in the immediate future. The markets will continue to see a lot of questions asked about it, so it is worth noting that that market can somehow look forward to the inflationary headwinds that the UK is facing at the moment. The “buy on the dip” mentality is still very much alive, and it is probably worth noting that the market is trying to “front run” the Fed later in the session. Because of this, any pullback will more likely be an opportunity for more buyers to emerge.
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