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Home ANALYSIS

USDJPY gives up gains. Trades negative on the day

A.R Chowdhury by A.R Chowdhury
March 23, 2022
Reading Time: 8 mins read
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The  USDJPY 
USD/JPY

The USD/JPY is the currency pair encompassing the dollar of the United States of America (symbol $, code USD), and the Japanese yen of Japan (symbol ¥, code JPY). The pair’s rate indicates how many Japanese yen are needed in order to purchase one US dollar. For example, when the USD/JPY is trading at 100.00, it means 1 US dollar is equivalent to 100 Japanese yen.  The US dollar (USD) is the world’s most traded currency, whilst the Japanese yen is the world’s third most traded currency, resulting in an extremely liquid pair, and very tight spreads, often staying within the 0 pip to 2 pip spread range on most forex brokers. Although the range of the USD/JPY isn’t traditionally particularly high, the lack of large price action often associated with other JPY pairs does make it easier to trade.This is especially true for short-term traders, although without offering a great pip potential. Even though the USD/JPY is the world’s second most traded pair, it’s not as popular as one might think with regards to retail traders.The pair carries a reputation as “boring”, although this isn’t an entirely accurate reflection. Trading the USD/JPYThe JPY is highly regarded as a safe haven currency, with investors often increasing their exposure following periods of uncertainty or market-induced fallouts.As both the US and Japan are highly developed economies, there are several key factors affecting the value of either currencies. This includes a range of economic indicators such as gross domestic product (GDP) growth, inflation, interest rates and unemployment data. Monetary policy by the US Federal Reserve and Bank of Japan are also large determinants in the value of each currency.

The USD/JPY is the currency pair encompassing the dollar of the United States of America (symbol $, code USD), and the Japanese yen of Japan (symbol ¥, code JPY). The pair’s rate indicates how many Japanese yen are needed in order to purchase one US dollar. For example, when the USD/JPY is trading at 100.00, it means 1 US dollar is equivalent to 100 Japanese yen.  The US dollar (USD) is the world’s most traded currency, whilst the Japanese yen is the world’s third most traded currency, resulting in an extremely liquid pair, and very tight spreads, often staying within the 0 pip to 2 pip spread range on most forex brokers. Although the range of the USD/JPY isn’t traditionally particularly high, the lack of large price action often associated with other JPY pairs does make it easier to trade.This is especially true for short-term traders, although without offering a great pip potential. Even though the USD/JPY is the world’s second most traded pair, it’s not as popular as one might think with regards to retail traders.The pair carries a reputation as “boring”, although this isn’t an entirely accurate reflection. Trading the USD/JPYThe JPY is highly regarded as a safe haven currency, with investors often increasing their exposure following periods of uncertainty or market-induced fallouts.As both the US and Japan are highly developed economies, there are several key factors affecting the value of either currencies. This includes a range of economic indicators such as gross domestic product (GDP) growth, inflation, interest rates and unemployment data. Monetary policy by the US Federal Reserve and Bank of Japan are also large determinants in the value of each currency.
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has moved up 11 of the last 12 trading day with the price trending from 114.64 to the new cycle high (and highest level in over 6 years) at 121.407. The 676 pip gain has been spurred by the increasing yield spread between US and  JPY 
JPY

The Japanese yen (JPY) is the official currency of Japan and at the time of writing is the third most-traded currency in the world behind only the US dollar and euro.The JPY is used extensively as a reserve currency and is relied upon by forex traders as a safe haven currency.Originally implemented in 1871, the JPY has had a long history and has survived multiple world wars and other events. This was followed by the creation of the Bank of Japan (BoJ) in 1882 and the full oversight of the JPY by the Japanese government only in 1971.Japan has historically maintained a policy of currency intervention, continuing to this day. The BoJ also adheres to a policy of zero to near-zero interest rates and the Japanese government has previously had a strict anti-inflation policyWhat Factors Affect the JPY?The aforementioned role of the BoJ has dramatically shaped the JPY in forex markets. Any further changes in monetary policy by the central bank are closely watched by forex traders.Additionally, the Overnight Call Rate is the key short-term inter-bank rate. The BoJ utilizes the call rate to signal monetary policy changes, which in turn impact the JPY.The BoJ also purchases both 10- and 20-year Japanese government bonds (JGBs) on a monthly basis in order to inject liquidity into the monetary system. The consequent yield on the benchmark 10-year JGBs helps serve as a key indicator of long-term interest rates.Economic data is also very important to the JPY. The most important of these releases in Japan are gross domestic product (GDP), the Tankan survey (quarterly business sentiment and expectations survey), international trade, readings of unemployment, industrial production, and money supply (M2+CDs).

The Japanese yen (JPY) is the official currency of Japan and at the time of writing is the third most-traded currency in the world behind only the US dollar and euro.The JPY is used extensively as a reserve currency and is relied upon by forex traders as a safe haven currency.Originally implemented in 1871, the JPY has had a long history and has survived multiple world wars and other events. This was followed by the creation of the Bank of Japan (BoJ) in 1882 and the full oversight of the JPY by the Japanese government only in 1971.Japan has historically maintained a policy of currency intervention, continuing to this day. The BoJ also adheres to a policy of zero to near-zero interest rates and the Japanese government has previously had a strict anti-inflation policyWhat Factors Affect the JPY?The aforementioned role of the BoJ has dramatically shaped the JPY in forex markets. Any further changes in monetary policy by the central bank are closely watched by forex traders.Additionally, the Overnight Call Rate is the key short-term inter-bank rate. The BoJ utilizes the call rate to signal monetary policy changes, which in turn impact the JPY.The BoJ also purchases both 10- and 20-year Japanese government bonds (JGBs) on a monthly basis in order to inject liquidity into the monetary system. The consequent yield on the benchmark 10-year JGBs helps serve as a key indicator of long-term interest rates.Economic data is also very important to the JPY. The most important of these releases in Japan are gross domestic product (GDP), the Tankan survey (quarterly business sentiment and expectations survey), international trade, readings of unemployment, industrial production, and money supply (M2+CDs).
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yields. The spread between the US 10 year and the Japan 10 year is up to 218 basis points and up from 49 basis points at the 2020 low. That spread is the highest since July 2019.

USD

US vs JPY 10 year yield spread

Looking at the weekly chart below, the price moved to a high today at121.407 and in the process got closer to the next swing area going back to November 2014 to January 2016 at 121.68 to 122.019.

Yes, the price at the high today was still 28 to 61 pips from breaking that target area, but given the last 3 week move to the upside, it certainly got to those targets rather quickly as buyers have pushed with speed.

Trends are fast, directional and tend to go farther than traders expect, and that is what has been happening.

USDJPY

USDJPY on the weekly chart

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Having said that, the pair has come off the highs and has erased the gains for the day. We may actually have the second down day in the last 13 trading days today. The close from yesterday came in at 120.82. The current price is trading at 120.67. There is a small crack in the dam. Stocks are lower. The US 10 year yields are also lower for a change. That is hurting the pair in trading today.

Going all away from the weekly chart to the five minute chart below, the move was foreshadowed by the price cracking back below the 100/200 bar moving averages on that chart (see blue and green lines in the chart below).

Note the last move to the downside, found resistance against the falling 100 bar moving average (blue line), and then the 200 bar MA. Buyers turned to sellers and pushed down from around the 121.00 level to the low today of 120.70.

USDJPY

USDJPY shows some cracks on the 5 minute chart

What next?

Staying on the five minute chart, sellers looking for more downside would still need to get below the 38.2% retracement of the last trend move it to the upside started on Monday to increase any bearish bias. That level comes in at 120.528. Move below that level, and traders would target the 50% of the same move to the upside at 120.257.

Those would be the minimum targets to give the sellers more control. Remember the retracement is only from the move over the last few days. The market price for the USDJPY has been moving up over the last 12 days.

What would hurt the short term bearish bias today?

Moving back positive, but also getting back above the falling 100 and 200 bar moving averages on the five minute chart would certainly erase any negative/selling hope in the market for the day.

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A.R Chowdhury

A.R Chowdhury

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