USD/JPY tumbles on profit taking ahead of Fed rate hike next week

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The dollar/yen slipped from a 20-year high on Friday but still posted a sharp loss for the month as the Japanese currency was hurt by the Bank of Japan’s dovish policy. The greenback gave up some of its gains on Friday as investors took profits, but still ended the month strong.

At 20:03 GMT, USD/JPY is trading at 129.763, down 1.076 or -0.82%. The Invesco CurrencyShares Japanese Yen Trust ETF (FXY) settled at $72.17, up $0.62 or +0.87%.

USD/JPY was trading lower for most of the session, but gained momentum late in the session after US stocks sank with the NASDAQ Composite posting its worst month since 2008, as Amazon became the latest victim of the tech-focused April sale. . The move triggered flight-to-safety buying in the Japanese yen.

Daily USD/JPY

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through 131.249 will signal a resumption of the uptrend. A move through 126.945 will change the main trend down.

The first minor range is 126.945 to 131.249. Its 50% level at 129.097 is the closest support.

The second minor range is 123.471 to 131.249. Its 50% level at 127.360 is the second best support.

Major support is a pair of support clusters at 122.950 to 122.360 and 120.991 to 120.263.

Short-term outlook

Longer term, the divergence between the hawkish US Federal Reserve and the dovish Bank of Japan should make the US dollar a more attractive asset.

In the short term, however, USD/JPY may be vulnerable to short-term corrections. The first could be triggered by an intervention from the Bank of Japan (BOJ), however, that is not likely after the BOJ’s monetary policy decision last week. At his meeting, he pledged to redouble his efforts to keep interest rates low. Nevertheless, it may only take one bearish economic report to change your mind.

We could also see a correction after the Federal Reserve announced its interest rate on May 4. Traders have known for weeks that the Fed is likely to raise interest rates by 50 basis points. We must therefore conclude that the price has already entered the market. This makes him vulnerable to a “buy the rumour, sell the fact” situation.

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