The US dollar has plunged initially during the trading session on Friday, but as the jobs number came out hotter than anticipated, the US dollar rallied against the Japanese yen. With that being said, if we can break above the top of the candlestick for the trading session on Friday, I think a recovery is very possible. There is a lot of noise out there about the Bank of Japan possibly normalizing rates, but at this point, that is still a bit far-fetched.
More importantly, it looks like the Federal Reserve has yet another reason to think that they have to stay tight, as a hot labor market means that inflation will more likely than not continue to be a problem. The fact that we formed a hammer during the Friday session also suggest that from a technical analysis standpoint, there may be buyers out there willing to get involved. Above the ¥145 level opens up the possibility of a move to the ¥147 level, which is where the recent selloff began from. Quite frankly, I still think it’s a lot of wild speculation that the Bank of Japan is going to do anything, and therefore it’s probably only a matter time before you rally. However, if we break through the bottom of the wipeout candlestick from Thursday, that would obviously kick off the likelihood of a new downtrend.
While the US dollar has struggled against multiple currencies, the Japanese yen is going to be a bit of an outlier, at least in the sense that you still get negative rates coming out of Japan. All things being equal, I think the next week or 2 will probably be crucial, especially as the Bank of Japan has an interest rate decision and statement. Beyond that, we also have to pay attention to the lack of liquidity that will be coming to the markets, as people will focus more on holidays than anything else. That being said, the Bank of Japan meeting later this month is probably the next major driver of where we go next, beyond bond yields of course, which always have to be watched with this pair.
Being FXEmpire’s analyst since the early days of the website, Chris has over 20 years of experience across various markets and assets – currencies, indices, and commodities. He is a proprietary trader as well trading institutional accounts.