According to Bloomberg analysts, the implied volatility of the dollar-yen exchange rate (a measure of its expected movement over the period), may fall to its lowest level since March 2022. This decline is supported by the pair's narrowing daily trading range which is due to the fact that there are two opposing forces that are limiting movement in either direction.
The USDJPY pair appears to be caught in the range (151.00–148.00) between the Ministry of Finance threatening intervention on the topside, while the Bank of Japan talking down the chance of rate hikes is supporting the exchange rate on the downside.
Lowering of the Federal Reserve rate cut expectations following strong US inflation data is also limiting the downside to USDJPY. The largest daily range last week was just 0.75 yen, compared with over two yen in early January.
With the currency pair looking vulnerable to becoming trapped at around 150, traders will be watching to see if Japan’s inflation data on February 27 can be the catalyst for it to break out of a narrow range. BOJ Governor Kazuo Ueda last week signaled continued confidence over the prospects of achieving stable inflation, which some analysts said was an indicator of policy change.
According to technical analysis, the USDJPY pair has tested the level of 150.90, reached on November 16 last year. Therefore, the potential upward movement of the pair is exhausted. The most probable scenario is USDJPY moving down to the level of 148.9 which is also waiting for a retest.
The overall recommendation is to sell USDJPY.
Take profit at the level of 148.90. Fix the loss at the level of 151.70.
This content is for informational purposes only and is not intended to be investing advice.
