And the USD/JPY currency pair has been nothing if not remarkable on its resilience. It recovered by over 50 pips from a two-week low struck earlier in the trading day. During the Asian and early European session, it dropped back down toward the mid-146.00s. This change was heavily driven by new trends in JPY selling. This rebound is emblematic of a continuing seesaw as traders continue to balance both technicals with changing macroeconomic news.
The USD/JPY currency pair earlier in the session reached a two-week low. This decline was followed by one of the largest boom periods in history. Traders are scrambling in response to rapidly moving market conditions. This move took place with the backdrop of the Japanese yen succumbing to renewed selling pressure. The past seven days, the pair has been recovering around the 146.60 area. This key critical breakpoint would make a huge difference for the future movement.
Technical indicators have a significant impact on traders’ expectations. The USD/JPY pair just recently fell below its 100-period Simple Moving Average (SMA). This development in turn is igniting new bearish sentiment among traders. This is one of the key indicators to every trader. When price has made a habit of closing under the 100-period SMA, that’s usually a sign of worsening deterioration.
That recent bearish sentiment has not been enough to hold back the recovery momentum of the USD/JPY pair. That said, it is facing deep technical resistance under 146.60. Traders are eyeing this point with intense scrutiny, with a potential inability to clear it possibly bringing back the bearish fury. Beyond this threshold, the next level of resistance lies roughly around the psychological level of 147.00. If USD/JPY continues to be strong it might rally even further. It could even test the 147.60-147.65 area after breaching the overnight swing high at roughly 147.20.
The duo has mostly created a floor around the 145.85-145.75 area. This support is very nearly the July 10 low and happens to be right at the 38.2% Fibonacci retracement level from the rally established in July. Traders are eyeing this support zone closely, as a break down below could indicate a further move south. Market analysts say this had the effect of reversing the USD/JPY back down towards the 145.20-145.15 order cluster. In this yellow box is where you’ll find the 61.8% Fibonacci retracement level.
An additional negative factor to market sentiment is the impact of Japan’s recently released hard economic data. A private-sector survey released Friday records that Japan’s manufacturing activity unexpectedly dropped into contraction territory in July. Such a drop is bound to raise fears over the resiliency of the Japanese economy. The yen could come under greater pressure by these developments. Perhaps more interestingly, they could affect USD/JPY trading dynamics, especially if we observe further indications of an economic deceleration.
Futures traders are trying to gauge all of these variables. They’re watching closely for any signs that monetary policy will change, from the Bank of Japan (BoJ) and the Fed. Speculation around future rate hikes from either central bank could cause dramatic impacts on currency valuations in the short term.