Potential signal:
- I would be a buyer of this pair on a daily close above the ¥150 level.
- I would have a stop loss at ¥149, and aim for ¥152.33.
During the session on Thursday, we have seen the US dollar dropped pretty significantly against the Japanese yen in the early hours, only to turn around and show signs of strength again. At this point in time, I do think that volatility is going to become a major problem in the markets, and therefore you would see it here as well. After all, this is a pair that is typically volatile, especially as it is the epicenter of the so-called “carry trade” most of the time.
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It’s worth noting that the Federal Reserve suggested that they don’t really know what they are going to do, but most traders believe there is a cut or 2 coming between now and the end of the year. What’s even more important is the fact that the Bank of Japan is likely to cut by only 10 basis points this year, meaning that the interest rate differential will continue to favor the US dollar over the longer term at this point. If that’s going to be the case, then it does make a certain amount of sense that the buyers returned.
Confusion
That being said, this is a market that is very confused at the moment, and I would not get aggressive with any position at this juncture. After all, this is a market that will have violent movements from time to time, and I think that is going to continue to be one of the biggest issues we face. With that being the case, you have to protect your account at all costs.
On the downside, if we were to break down below the ¥147 level, we could see a bigger move to the downside, perhaps watching the US dollar drop down to the ¥145 level. Ultimately, that would signify a major “risk off move” in global markets overall.
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