Trading strategy of selling USDJPY becomes relevant amid monetary policies of U.S. and Japan

28 March 2024 58
Trading strategy of selling USDJPY becomes relevant amid monetary policies of U.S. and Japan

The USDJPY currency pair consolidates near an all-time high despite the long-awaited monetary tightening in Japan. The yen's decline started after the Bank of Japan (BoJ) raised its key rate for the first time in 17 years, thus taking it out of negative territory. However, the gap between Japan and U.S. rates plays a key role in the yen's low price. The Bank of Japan rate is now at 0.1%, while the Fed rate is now at 5.5%.


Representatives of the Ministry of Finance, the Central Bank and the Financial Services Agency of Japan held an unscheduled meeting in connection with the record fall of the national currency. As a result of the meeting, the authorities pointed to speculative grounds for the current fluctuation of the exchange rate.


The Minister of Finance, Shunichi Suzuki, mentioned decisive action, hinting at currency intervention, a rarity in Japan.


The growth of the Japanese yen is also hindered by the strong U.S. dollar. On Thursday, it strengthened against major currencies.


Christopher Waller, a member of the Board of Governors of the U.S. Federal Reserve System (Fed), said that the regulator is in no hurry to cut rates amid sticky inflation. On this background, market participants revised their forecasts regarding the beginning of cutting rates by the Fed.


Current pricing has it at a 60% chance, compared to 67% around this time last week, according to the CME FedWatch tool.

Expectations of the Fed's monetary policy easing, as well as the hints of an official from Japan on the possibility of currency intervention, may be a reason for traders to consider selling USDJPY on favorable positions.


USDJPY quotes do not have a clear trend component on the H4 timeframe. Divergence of the Relative Strength Index (RSI) indicator (standard values) shows a possible change in price direction towards the formation of a downtrend.

 

Signal:

The short-term outlook for USDJPY is to sell.

The target is at the level of 149.20.

Part of the profit should be fixed near the level of 150.30.

A Stop-loss should be placed at the level of 152.50.

 

The bearish trend has a short-term character, so the trade volume should not be more than 2% of your balance.

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

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