- On Monday, the USD/JPY continued its impressive rally that had begun on Friday.
- The surge was partly fueled by the Japanese interest rate decision and statement during the early hours of Friday. Market players interpreted the Bank of Japan's move back into the bond market as an indication of the country's continued loose monetary policy.
- As a result, traders anticipated a potential devaluation of the Japanese yen. The ¥142.50 level was tested but saw a pullback. However, considering its historical significance, breaking above this level could lead the market to target the ¥145 level.
In case of a pullback, traders are eyeing the 50-Day Exponential Moving Average as a potential new support level, located around the ¥140.50 mark. Should the market break below this level, it could potentially move toward the ¥138 level, which marks the top of the previous ascending triangle and has demonstrated strong support in recent times.
Pullbacks Are Seen As Buying Opportunities
Given the current market conditions, the most likely behavior is for traders to view pullbacks as potential buying opportunities, as this has been the prevailing trend for quite some time. Alternatively, the market may reach for the ¥145 level and possibly break above it. Should the latter scenario occur, it would open up the possibility of a move to the ¥150 level. Some experts even forecast the pair to reach the ¥200 level over time, attributing this prediction to the Bank of Japan's limited options due to the country's substantial debt levels. To prevent a rapid rise in interest rates, the Bank of Japan may continue to pursue loose monetary policy. Consequently, the Japanese yen is expected to remain weak for an extended period, unless other central banks worldwide decide to adopt similar accommodative measures.
At the end of the day, the US dollar demonstrated a strong rally, supported by market expectations of continued loose monetary policy in Japan. The ¥142.50 level has played a crucial role in the market's recent behavior, with a potential break above opening the door for further gains towards the ¥145 level. On the other hand, pullbacks are seen as potential buying opportunities, given the long-standing trend. The Japanese yen is anticipated to remain soft in the foreseeable future, influenced by the Bank of Japan's monetary policy decisions and the country's considerable debt levels.
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