Buying USDJPY will be an attractive trade again after the correction

26 May 2023 192
Buying USDJPY will be an attractive trade again after the correction

The USDJPY currency pair reached the level of 140 for the first time since last November. Considering the growth by more than 4.5% over the last 2 weeks, as well as the psychological significance of the price levels above 140, a lot of market participants decided to lock in their profits. The overbought of technical indicators also supports a slight correction of the USDJPY. However, a dollar against the yen trade would be an attractive trading strategy again with declines to 138.7 and 137.5.

 

Today statistics on inflation in Tokyo were controversial. While the overall consumer price index declined from 3.5% to 3.2% (against expectations of 3.3%), the core inflation rate broke new highs since 1982 and reached 3.9%. This data renewed the discussion about a possible tightening of the monetary policy in Japan.

 

The current Chairman of the Bank of Japan, Kazuo Ueda, unlike his former leader Haruhiko Kuroda, is quite open to the possibility of changes in the super-soft monetary policy. However, before that, the head of Japan's financial regulator wants to analyze the consequences of maintaining the key rate at negative level of -0.1%, where it has been since January 2016. It means that the potential for an increase in interest rates has increased significantly, but there is no reason to expect actual actions by the Bank of Japan in the coming months.

 

As the USDJPY approaches price levels above 140, some market participants may be concerned about new currency interventions, which were used by the Japanese authorities last year to stop the great yen fall. However, now there are no comments from Japanese officials, and with the normalization of the trade balance deficit the probability of the Bank of Japan's intervention in the foreign exchange market has significantly decreased.

 

On the background of overbought by the RSI indicator, it is advisable to monitor the scale of the USDJPY correctional decline. The level of 138.7 will be the first target, and then it is possible to reach the level of 137.5. Buying the dollar against the yen in this range, expecting a return to the level of 140, looks like an interesting trade.

 

 

The following trading strategy option can be suggested:

 

Buy USDJPY at a decline into the 137.5-138.7 range. Take profit – 140. Stop loss – 136.5.

This content is for informational purposes only and is not intended to be investing advice.

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