- During Wednesday's trading session, the USD/JPY currency pair experienced a slight pullback as the ¥135 level continues to provide some resistance.
- The chart shows that this level has been essential for both resistance and support in the past.
- The market is likely to continue to see the ¥135 level as a challenge, so it's not surprising that sellers came back as the market approached this level.
- However, ultimately, I believe that we will break out.
USD/JPY Technical Outlook and Breakout / Breakdown Scenarios
Breaking out above the ¥135 level could take the market to the ¥137.560 level, where there was significant selling pressure in the past. A further breakout could then lead to the ¥140 level. It's worth noting that the market bounced back from the ¥127.50 level, which coincides with last year's 50% Fibonacci level from the major move to the upside. The 200-Day EMA sits just below, and the 50-Day EMA is below the ¥130 level. Another crossover between these two moving averages is possible, and it's something worth paying attention to. Overall, this is a market that appears to be a "buy on the dip" scenario.
The Bank of Japan is working to counter yields in the bond market, capping the 10-year yield at 50 basis points. This level has been reached over the last couple of days, which means that they will have to continue printing yen, thereby driving down the value of the Japanese currency. Due to this, I believe that we will eventually see this pair move higher. I think this will continue to be one of the major movers of the market, as the Japanese yen has been hammered by multiple currencies, not just the US dollar. Furthermore, the US dollar continues to see a lot of interest due to the fact that the 2 year yield hit a high just yesterday. With this being the case, the fact that a lot of people are concerned about the global economy, I do think we continue to see more upward pressure than anything else. Short-term pullbacks continue to offer buying opportunities, and therefore I think you have to look at it through that prism, with the idea of the USD/JPY pair continuing the longer term uptrend from last year as we should continue to see a lot of the same problems last year return.
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