- The USD/JPY has descended to the critical ¥147.80 level, an area that has previously served as a reliable support zone.
- We briefly breached this level, but recent price action indicates a shift in sentiment, as the market now appears to be taking this zone seriously.
- The pressing question on traders' minds is whether and when we might witness a rally.
There's a growing sentiment in the market that the Bank of Japan might contemplate tightening its monetary policy. However, it's worth noting that such remarks have been made multiple times as the market advanced toward this level. Consequently, the real impetus for action is likely to emanate from Washington D.C. and the Federal Reserve.
The narrowing of the interest rate differential between the United States and Japan, driven in part by the decline in US interest rates, may be contributing to the dynamics observed in this chart. Nevertheless, it's essential to recognize that this market retains a substantial foundation of support underneath. Additionally, the 50-Day Exponential Moving Average above is likely to function as a resistance barrier.
Analyzing Potential Long Positions Amidst Market Choppiness
However, if we can break above the high point of the candlestick from Tuesday's session, I am inclined to consider a small, long position to capitalize on the prevailing longer-term trend. After all, you still get paid to hold the greenback against the yen. I think that the “carry trade” continue to be a factor that people should be paying attention to.
Conversely, a breakdown below the ¥145 level would shift the focus to the 200-Day EMA indicator, which frequently serves as a robust long-term support level. We'll need to monitor the developments in interest rates closely. Moreover, with Thursday marking Thanksgiving in the United States, the bond markets will operate under abbreviated hours for the week. Consequently, the market may remain in a state of drift as it attempts to decipher its next move.
In any event, the path forward is likely to be marked by significant choppiness, as the market grapples with the aftermath of a severe pullback. While I will closely observe how fundamental factors evolve, I am not currently inclined to initiate short positions on this currency pair. In all honesty, if the prevailing trend has indeed shifted, there is still a considerable distance to cover before any significant trend reversal becomes evident.
