- The USD/JPY experienced a decline on Thursday, as market participants took profits after an extended period of upward momentum.
- It is natural to see a correction following an extended rally. The ¥142.50 level, which held importance in the past, is expected to provide support.
- Despite the temporary pullback, buyers are likely to seize opportunities to capitalize on price dips, given the market's overall bullish sentiment.
It is important to consider that the Bank of Japan will continue to pursue loose monetary policy as Japan grapples with low inflation. In contrast, the Federal Reserve is expected to maintain a tight monetary policy stance. This fundamental divergence between the two central banks supports the notion that the US dollar will continue to appreciate over time.
A breakdown below the ¥142.50 level could lead to a further decline toward the 50-Day Exponential Moving Average, situated at the top of the previous bullish flag pattern. In this context, the 50-Day EMA can be viewed as a potential floor in the market. Consequently, value hunters are likely to emerge, seeking to take advantage of what they perceive as an opportunity to buy US dollars at a relatively lower price. This scenario suggests a positive outlook for the US dollar.
The Pair is Turning Around to the Upside
While the market experiences profit-taking, it is important to note that this is likely a temporary correction rather than a significant shift in sentiment. The prevailing trend remains firmly established, and it is anticipated that buying pressure will resume. In the short term, it may be prudent to observe the market from the sidelines to identify a favorable entry point. By doing so, traders can potentially seize a better opportunity in the future.
The US dollar saw a decline as profit-taking took place following a sustained period of upward movement. However, the market's overall bullish sentiment remains intact. The ¥142.50 level is expected to provide support, while the fundamental disparity between the Bank of Japan and the Federal Reserve supports the US dollar's upward trajectory. Value hunters are likely to capitalize on price dips, driving further buying pressure. While caution is advised in the short term, the prevailing trend suggests significant potential for the US dollar. It is important to recognize the ongoing fundamental differences and refrain from fighting against the prevailing trend until a substantial shift occurs. In fact, as I write this, the pair has started to turn around to the upside.
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