USD/JPY surged to 152 until October last year, as the USD was climbing on FED monetary policy tightening, while the Japanese Yen was declining as Bank of Japan kept rates unchanged. Then came the reversal as the FED slowed down with rate hikes, with the 20 SMA (gray) acting as resistance on the daily chart, indicating strong selling pressure.
Although in February we saw a bullish reversal as the data was showing a decent rebound in the US economy and the FED started to sound more hawkish again. But buyers failed to break above the 200 daily SMA (purple) and the price retreated lower as the JPY became more attractive as a safe-haven currency. This was caused by concerns about the fallout from the collapse of Silicon Valley Bank, which revived the fears of another financial crisis in the United States like in 2008-09.
In response to these fears, US authorities moved quickly to reassure clients that their deposits would be guaranteed by the Federal Reserve and the US Treasury. This led to a decrease in the likelihood of a 50 bps rate hike for next week’s meeting, and now odds are for a 25 bps hike instead, but markets are more concentrated on the banking crisis right now.
Although, it seems like there is contagion in the banking sector with more banks asking for aid the financial markets and increased worries about financial instability in the United States and elsewhere, USD/JPY fell below its previous support level, which is now considered resistance at the 200-day moving average.
The currency’s downward trend was further fueled by breaking through the rising wedge formation and falling below the key psychological level of 135.000, which allowed sellers to keep pushing the exchange rate lower. This has led to this forex pair falling to the 50 daily SMA, which is now acting as a support level at around 132.60 after falling to 131.90 earlier yesterday. This would be a good place to open a buy USD/JPY signal, but we will see how the banking crisis goes and if it fades, then we might go long on this pair.