The USD/JPY currency pair has reversed sharply in recent minutes after hitting a new intraday high of 156.80. The decline is part of a wider attempt by traders to push down on the overnight pullback from a close to 2 week-high. The ongoing USD selling pressure is clearly the force behind this downward momentum. Unfortunately, the pair has begun to crumble.
Expectations for the Federal Reserve (Fed) are arguably the biggest drivers of market sentiment that will continue to influence the USD/JPY pair’s direction. The USD Index (DXY) has pressed lower from a four week high seen earlier this week. It’s all dovish expectations about the Fed that’s causing this market action. Consequently, speculators are dumping the dollar, leading to a more rapid depreciation of the USD/JPY exchange rate.
Despite the recent market downturn, the upside trend doesn’t seem to have fazed the USD/JPY pair. It remains below the upper bound of an ascending channel that began developing at 155.46. At the moment, support for the currency pair is located just above 156.16, an important level that traders are extremely watchful of. If the duo strongly rebounds from this bottom, it will find its footing. This movement would allow the corrective shift away from the lower end of the channel structure and toward the upper end.
On the downside, a firm close below the 156.16 support level would open up deeper bearish prospects for the USD/JPY pair. If we do give up this critical level, we could see focus turn to the channel’s starting point at 155.46. If so, it would suggest troubling signs of a bigger drop.
Technical indicators show that the outlook for the USD/JPY pair is mixed. The Moving Average Convergence Divergence (MACD) is currently flitting back and forth at the zero line. A flat histogram indicates momentum is neither positive nor negative. The Relative Strength Index (RSI) has now reached 41 and is below the midline. This positioning indicates some slight bearish sentiment after a recent retreat from the low-30s area.
In Japan, interest on gov’t bonds is playing a huge role in overall market dynamic. The yield on two-year Japanese government bonds (JGB) has surged to its highest level since 1996. At the same time, the benchmark 10-year JGB yield has increased to heights not seen since 1999. Soaring bond yields potentially deal another blow to sentiment among investors. This amendment might affect currency flows too as market players re-assess their every move to adapt to changing monetary tides.
The US Nonfarm Payrolls (NFP) report will be out this Friday. The release of this report is likely to have an outsized impact on USD price dynamics in the near term. Analysts have been watching this rare event closely. Besides creating overall positive momentum for the USD/JPY pair, it would likely affect the pair’s movement and direction.