- Friday is seen the US dollar plunged rather significantly against the Japanese yen after the Jackson Hole speech by Jerome Powell.
- At this point, it looks as if the Federal Reserve is at least “open to the idea of cutting rates”, which is something that is fairly new.
- This has people suspecting that maybe the Federal Reserve will cut rates, and the Fed Funds Futures markets have a 91% chance of a rate cut in September priced in again.
- At one point, we dropped about 25%, but now it looks like the market is all but convinced it’s going to happen.
That being said, you have to be careful with these moves, because quite often, the initial “knee-jerk reaction” isn’t necessarily the correct one. After all, despite the fact that we have fallen rather significantly, we are basically just at the bottom of the consolidation area that we have been in for 2 weeks. The question then is whether or not this will change things? I don’t know if it will, I think it’s a little too early to make that determination, especially considering that even if the Federal Reserve were to cut twice this year, as the Fed Funds Futures markets expect, you are still talking about an interest rate differential that is wide enough to drive a truck through.
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Technical Analysis
I’m watching the ¥149 level very closely, because if we were to break above there, then it would be very poor for the Japanese yen. Conversely, if we break down below the ¥146 level, then I think the US dollar could drop to the ¥145 level. Anything underneath there opens up the possibility of the ¥142 level being targeted.
Do not get me wrong, the candlestick is very ugly and could lead to something quite drastic. However, a couple of weeks ago we had a massive bearish engulfing candlestick that was followed up by nothing but sideways action. This is a very choppy and erotic currency pair, so make sure that you are careful with your position size.
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