- The USD/JPY has experienced a slight pullback during the early trading hours of Wednesday, creating an opportunity for value hunters to re-enter the market as anticipation builds for the upcoming Federal Reserve announcement.
- Given the current market conditions, the general consensus among traders and analysts is that the US dollar is poised for a continued upward trajectory, although some level of profit-taking is to be expected in the face of the impending volatile event.
From a technical perspective, the ¥150 level stands out as a formidable floor in the market, providing a solid foundation for the currency pair. Now that the price has ascended well above this threshold, it serves as an encouraging signal for investors looking to capitalize on the value presented by potential dips in the market.
However, it is crucial to note that the ¥152 level above is perceived as a major resistance barrier. This level has historically acted as a ceiling, limiting the upward potential of the US dollar against the Japanese yen. The recent fluctuations in the market can be attributed to the Bank of Japan’s hesitation, as it initially hinted at a potential softening of its yield curve control, only to fall short of providing a clear and definitive course of action. Tuesday's candlestick was a clear reflection of the market's response, as traders swiftly punished the Japanese yen for the central bank's indecision.
Looking to Buy on the Dips
It is widely recognized that Japan’s colossal national debt leaves little room for the central bank to permit a rapid rise in interest rates, necessitating a continued commitment to quantitative easing. On the other side of the equation, the Federal Reserve is expected to maintain a “tighter for longer” monetary policy stance, inevitably bolstering the strength of the US dollar.
Looking at the technical indicators, the 50-Day Exponential Moving Average is currently situated near the ¥148 level, expected to provide substantial support for the US dollar over the longer term. While a breakdown below the ¥147.80 level could potentially lead to a deeper correction, such a scenario appears highly unlikely unless Federal Reserve Chair Jerome Powell delivers an unexpected market shock. At this juncture, such an outcome is not anticipated.
In the end, the prevailing sentiment among market participants is to view dips in the US dollar as buying opportunities, given the broader context of a longer-term secular bull market. This perspective is expected to remain valid for several months at the very least, as traders and investors align their strategies with the overarching trend and prepare for the next waves of market movement.
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