The USDJPY currency pair this week again updated the highs since the early 1990s, quotations almost reached the level of 154.8. There are still no long-awaited currency interventions from the Bank of Japan, and traders continue to sell the yen against the dollar. Given the proximity of the psychologically important mark of 155 and accumulated overbought, the currency market participants are ready for a slight pause in the upward price movement. Nevertheless, there will probably be an attempt to break the level of 155 in the future.
The latest data from the U.S. Commodity Futures Trading Commission shows the largest short position in the Japanese currency in the last 17 years. Net sales of yen contracts reached a level of 13.4 billion dollars. Analysts surveyed by Bloomberg are moving their USDJPY forecasts to the 160-170 range, where the pair last traded in April 1990. Julia Wang from JPMorgan considers this scenario quite possible, provided that the yen weakening will be smooth, without sharp jumps in quotations.
Quentin Fitzsimmons from T. Rowe Price Group considers further tightening of monetary policy in Japan as too weak support for the national currency. In his opinion, the Japanese authorities are quite satisfied with the low yen exchange rate, as it makes the country's exports more competitive, as well as facilitates the servicing of debt obligations. In addition, the weak yen supports a sustainable return of inflation to the 2% target, which has not been achieved for more than 30 years.
Speaking today, Bank of Japan board member Asahi Noguchi said the pace of interest rate hikes will be slow. In March, Noguchi voted against the first monetary policy tightening since 2007, but was in the minority. However, he continues to see soft financial conditions necessary for Japan's economic development. This stance confirms the yen's fundamental weakness against the dollar.
RSI and Stochastic indicators on the daily chart of USDJPY speak in favor of a small correction after the past growth wave. Quotes may roll back closer to the level of 153, but this will not prevent the bulls from regaining the initiative soon. Their nearest target is the level of 155.
The following trading strategy may be offered:
Buy USDJPY near the level of 153. Take profit – 155. Stop-loss – 151.7.
This content is for informational purposes only and is not intended to be investing advice.
