The USD/JPY currency pair has witnessed the most selling interest in over three days of trading, highlighting the immensely difficult market landscape. As of the August 15-16 trading sessions, the pair fell to its lowest value in nearly ten years—since September 2014. Indeed, last week, the US Dollar strengthened sharply amid hawkish comments from Chair Powell. Despite more buoyant market conditions, investor sentiment is still wary as fears about the health of the US financial system persist.
The USD/JPY pair now make their stand at the key resistance level near 140.85. Any hope for meaningful recovery will face obstacles the moment one lands on this untouched, rugged region. This is to say that it has turned into a major battleground for the traders. The recent volatility has ignited analysts’ imaginations. Their view is that a more dovish turn could see the pair test a retest of the yearly swing low for 2024, circa 139.60 to 139.55.
Though the US Dollar has staged a bit of a rebound, investors are still showing signs of concern over the US financial scene. Former President Donald Trump has been outwardly critical of Federal Reserve Chair Jerome Powell. This has increased anxiety and added to a shaky industry mood. Foreign exchange markets are watching the ongoing developments with bated breath as possible de-dollarization moves could send long awaited shockwaves across currency valuations.
As things stand now, the USD/JPY pair remains at risk of a deeper retreat, with analysts forecasting as far a movement as down towards the 139.00 level. If this 4,000 level is breached, a major correction may be in the cards. This further push could propel the couple toward the 138.70 area and perhaps in due course probe sub-138.00 territory.
Given the recent price action over the past couple trading sessions, the USD/JPY pair seems to be setting up for a downward move. The psychological barrier at 140.00 continues to be an important factor in setting direction of this market. Should the strength hold above this key threshold, it has the potential to ignite a vicious short-covering rally. Alternatively, should the pair remain under this threshold, it could indicate a new phase of downward movement.
The USD/JPY is walking through a minefield. Market participants are always on the lookout for changes in economic indicators and geopolitical events that may affect the direction of the currency pair. The path of least resistance at this point in time is no doubt leaning bearish for the foreseeable future.