The USDJPY currency pair has recently captured significant attention amid a pivotal shift in Japan’s monetary policy landscape. Marking a notable departure from its prolonged ultraloose monetary stance, the Bank of Japan (BoJ) executed its first interest rate hike since 2007, nudging rates from -0.1% to a range of 0% to 0.1%.
This watershed decision terminates an unprecedented eight-year spell of negative interest rates, reflecting the BoJ’s nuanced response to economic conditions. Despite this historic move towards normalization of monetary policy, the Japanese Yen has experienced a marked depreciation, driving the USDJPY pair upwards by 78 basis points in the session, following five consecutive days of gains.
The BoJ’s indication of maintaining accommodative financial conditions has further fuelled this trend, prompting traders to offload the Yen. This development underscores the enduring significance of interest rate differentials between Japan and the United States, which continue to exert substantial pressure on the Yen. Traders will now turn to the Federal Reserve’s Interest Rate Decision for further insights which could drive the USDJPY pair.
Technical
The USDJPY currency pair has undergone a notable shift in sentiment, reflecting dynamic price action in recent trading sessions. Following a dip below the 100-day moving average, the pair has staged a remarkable recovery, surging above this key indicator, indicating a resurgence of bullish sentiment among traders.
A rally initially gained traction as buying interest intensified around the 145.896 level, coinciding with oversold conditions according to the Relative Strength Index (RSI). However, bullish momentum encountered resistance near the 150.885 level, accompanied by overbought RSI conditions, prompting a subsequent selloff and establishing a formidable resistance level.
During the selloff, the pair breached significant Fibonacci Retracement levels before finding stability just below the critical 61.80% Golden Ratio level amid oversold RSI conditions. This pivotal juncture sparked a bullish reversal, with the recent crossover above the 100-day moving average affirming buyer dominance in the market. Looking ahead, if upward momentum persists, a retest of the resistance at 150.885 appears likely. Conversely, renewed bearish pressures could target the 23.60% Fibonacci level as a key intermediate support zone, highlighting the delicate balance between buyers and sellers in the USDJPY market.
Summary
The Japanese Yen plummeted despite the Bank of Japan’s rate hike, driving the USDJPY pair higher. With the BoJ’s accommodative stance and technical indicators suggesting bullish sentiment, traders eye the Federal Reserve’s decision. Resistance lies at 150.885, while support is near the 23.60% Fibonacci level as markets await further cues.
Sources: Bank of Japan, Reuters, TradingView
Piece Written By Nkosilathi Dube, Trive Financial Market Analyst
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