Buyers will resume control in USD/JPY after they push above the MAs

Is USD/JPY Reversing Now After Breaching 130?

Posted Monday, March 27, 2023 by
Skerdian Meta • 2 min read

USD/JPY was showing resilience during February and gained more than 10 cents as the USD turned bullish, but resumed the larger downtrend as risk sentiment turned negative and the rallied as a safe haven. This pair has been following a bearish channel and sellers pushed below 130 on Friday, before pulling back up ahead of the closing markets, to end the week around 130.70.

This reinforces the expectation of a continued bearish trend, with the next target located at 129. The 50 SMA (yellow) used to act as support during the uptrend in February, while it has turned into resistance now, helped by the 20 SMA (gray) as well on the H4 chart. Although, if the price breaches 30, it could stop the expected decline and lead to a rise towards testing the 133.30 zone before any new attempt to resume the bearish momentum.

On Friday, there was a rise in selling of European banking shares due to the increasing uncertainty surrounding the ongoing crisis in the banking sector which is not over yet. This caused a ripple effect across the markets and resulted in traders moving towards safer assets such as the Yen, which was further reinforced by a historic purchase of Japanese government bonds, after the Bank of Japan decided to maintain its ultra-loose monetary policy. Japan’s Chief Cabinet Secretary, Matsuno announced that they will allocate over 2 trillion JPY from reserves to counteract the negative impact of rising prices on the economy.

Based on the a a hawkish comments from FED’s Bullard last Friday and the strong US services PMI data, there may be clues as to what could happen next week. Bullard said that while it’s important to continue monitoring issues in the banking sector, I believe that there’s an 80% chance that these issues will eventually be resolved. As a result, I think that the current 3.77% yield on the 2-year US bonds is too low.

The FED funds market is currently pricing in a 6 bps hike at the next meeting, which translates to about a 27% chance of a hike. Given that the FED is forecasting to keep it in that range, it’s hard to see a bigger disconnect unless economic data takes a turn for the worse. So, we will be looking for a bottom in USD/JPY this week, and if the sentiment improves further, then we might open a long term buy forex signal here. Gold has also been showing weakness today, retreating down below $1,950, but I think that it should be enough for today and moving averages are already providing support, so we decided to open a buy Gold signal.

USD/JPY Live Chart

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