Looking to Sell the Bounce in USD/JPY As the 200 Daily SMA Holds
The Japanese Yen has been on a strong decline against all major currencies as the Bank of Japan kept the monetary policy unchanged throughout the last two years, while other major central banks have been hiking rates at an incredible pace, although without much success on inflation. ASs a result, USD/JPY has been on a strong bullish trend this year, increasing around 17 cents despite weakness in the USD.
Although we saw a strong retreat last week, despite some recovery on Friday. The rise in Japanese yields has contributed to the Yen’s strength, but the main reason for the 8 cent retreat has been the USD, which has been weighed down by a reevaluation of expectations regarding future US interest rate increases.
Recent official data from the US has shown inflation easing, with the PI (consumer price index) falling to 3% in June as last week’s report showed, while the producer inflation PPI also slowed, suggesting that consumer inflation will slow down further in the coming months.
As a result, investors have adjusted their expectations for more aggressive interest rate hikes by the FED. While there is still a consensus that borrowing costs will increase this month, the anticipated rate hike has been dialed back to only a 0.25% hike this month, while the September hike has been written off.
The Bank of Japan has struggled to increase domestic inflation for years. The current rise in inflation is seen as a result of global factors rather than a signal for the need to change the Bank of Japan’s ultra-loose monetary policy. This means that the JPY will continue to be on the back foot against major currencies, and last week’s retreat in USD/JPY seems like a good opportunity to go long and open a long term buy forex signal here.
The price retreated from 145 which is a long term resistance zone and lost almost 8 cents, as USD/JPY fell to 137 lows. Although the200 SMA (purple held as support on the daily chart and we saw a 150 pip bounce on Friday. So, we are looking for another retreat closer to the 200 SMA this week where we can go long on this pair.
USD/JPY Live Chart
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