The USD/JPY currency pair is currently testing a significant resistance price level. That level is the 100-hour Simple Moving Average (SMA) just shy of the mid-156.00s as traders process the good and bad news in the market. The powerful U.S. dollar has made the pair go on to realize gains. Yet, even that has not provided clear intraday direction. Trading back and forth between small gains and small losses just above that all-important 156.00 figure. Traders continue to be on edge as they wait for possible fireworks to erupt from new economic data and monetary policy expectations.
Here’s what’s currently informing the trading environment for the USD/JPY pair. The story of Japan’s fiscal crisis and the divergent monetary policies of the Bank of Japan (BoJ) and the U.S. Federal Reserve (Fed) is key. Worries over Japan’s fiscal health are driving the mood in markets. The administration intends to fund an enlarged supplementary budget by issuing at least ¥11.5 trillion in new bonds. These measures will affect trader expectations about the future provision of new government debt. This new development doesn’t make things any less complicated for the yen’s outlook.
If the USD/JPY pair breaks the 100-hour SMA resistance convincingly, it might pave the way for additional upside. Given this development, it could reclaim the 157.00 level. This overall bullish trend is likely to hit a snag at the short-term hurdle around 157.45 – 157.50 (intermediate). Once it clears that though, the 158.00 round figure is in sight as a potential multi-month high. Should the pair fall below this level, traders would probably lack a bullish sentiment. If so, that might extend the one-week-old downtrend even more.
Traders will be watching the weekly low around 155.70-155.65 closely. In the case of a single convincing break below that zone, it might trigger a sudden descent toward the important psychological level of 155.00. The 156.00 round figure acts as an important line of defense for the USD/JPY pair. Secondly, it gives the recipient the safety net of a protective cushion against any future losses.
Market participants are acutely focused on rumors that Japanese authorities will intervene to stop yen weakness. This speculation further muddies the trading waters, as political U-turns could lead to huge swings in currency valuations.
In past blog posts, the USD/JPY pair’s trajectory perfectly illustrates contrasts from both sides of the Pacific. Higher-than-expected Tokyo core consumer inflation figures at first gave the yen a pay boost. These encouraging signs were soon eclipsed by fears over Japan’s fiscal solvency. Traders are on knife’s edge. They are balancing Japan’s expansionary economic policies with what they anticipate from U.S. monetary policy.
That backdrop of opposing monetary policies, as we’ve discussed, keeps working its market magic. The BoJ’s commitment to maintaining its ultra-loose monetary stance contrasts with the Fed’s tightening measures. This policy divergence has rocked forex markets, contributing to volatility in currency pairs like USD/JPY. That makes them especially sensitive to macroeconomic data releases and policy announcements.