The dollar/yen is down on Wednesday after hitting a new two-decade high earlier in the session. The initial push was fueled by more Federal Reserve officials pushing for significant interest rate hikes, while the Bank of Japan (BOJ) again intervened in the market to defend its ultra-low interest rate policy. low.
The price action after the initial rally, however, suggests that technical traders may view the market as overbought, while fundamental traders fear government intervention.
At 05:35 GMT, USD/JPY is trading at 128.641, down 0.250 or -0.19%. On Tuesday, the Invesco CurrencyShares Japanese Yen Trust ETF (FXY) settled at $72.71, down $1.09 or -1.48%.
Hawkish Fedspeak supports Treasury yields and the US dollar
US Treasury yields rose and continued their ascent in Tokyo trading, with 10-year yields hitting 2.981% for the first time since December 2018. Catalysts for the rise were hawkish comments from the Fed Chairman of Minneapolis, Neel Kashkari, and Chicago Fed President Charles Evans. .
BOJ attempts to rein in rising yields again
The BOJ again offered on Wednesday to buy unlimited amounts of Japanese government bonds to rein in the rise in Japanese 10-year yields, which were hitting its 0.25% tolerance cap.
Growing concerns over the yen’s rapid rise
The divergence in monetary policy between the US Federal Reserve and the Bank of Japan makes many traders believe that the fall in the Japanese yen is not justified, even if it increases the risks of monetary intervention.
Japanese Finance Minister Shunichi Suzuki issued the most explicit warning yet on Tuesday, saying the damage to the economy from the weakening currency currently outweighs the benefits it brings.
Daily Swing Chart Technical Analysis
The main trend is up according to the daily swing chart. A trade through 129.400 will signal a resumption of the uptrend.
A move through 121.284 will change the main downtrend. This is highly unlikely, but due to the prolonged rise in price and time, USD/JPY is ripe for a potentially bearish closing price reversal top. It won’t change the downtrend, but it will shift the momentum down.
The minor trend is also up. A trade through 125.089 will change the minor downtrend. It will also change the dynamic.
The first minor range is 125.089 to 129.400. Its pivot at 127.245 is the first downside target and potential support. This is followed by a pair of 50% levels at 126.436 and 125.342.
Daily Swing Chart Technical Forecast
USD/JPY’s direction on Wednesday is likely to be determined by traders’ reaction to 128.891.
A sustained move above 128.891 will indicate the presence of buyers. The removal of the intraday high at 129.400 will indicate that buying is gaining strength and could trigger an upward acceleration.
A sustained move below 128.891 will signal the presence of sellers. A trade through the intraday low at 128.066 will indicate that selling pressure is building. This could trigger a break in the first pivot at 127.245.
Buyers could step in on the first test of 127.245, but if it fails expect selling to eventually extend to the pivot at 126.436.
If the sellers exit 126.436 then the pivot at 125.342 will become the next target. This is a potential trigger point for downward acceleration.
A close below 128.891 will form a closing price reversal top on the daily chart. If confirmed, this could trigger the start of a 2-3 day minimum correction.