USD/JPY Tumbles on Profit-Taking Ahead of Next Week’s Fed Rate Hike

The Dollar/Yen slipped from a 20-year high on Friday but still posted a steep loss for the month as the Japanese currency was hurt by dovish Bank of Japan policy. The greenback gave back some of its gains on Friday as investors took profits, but still ended the month strong.

At 20:03 GMT, the USD/JPY is trading 129.763, down 1.076 or -0.82%. The Invesco CurrencyShares Japanese Yen Trust ETF (FXY) settled at $72.17, up $0.62 or +0.87%.

The USD/JPY was trading lower most of the session, but accelerated to the downside late in the session after U.S. stocks sunk with the NASDAQ Composite notching its worst month since 2008, as Amazon became the latest victim in April’s technology-led sell-off. This move triggered some flight-to-safety buying into the Japanese Yen.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. A trade through 131.249 will signal a resumption of the uptrend. A move through 126.945 will change the main trend to down.

The first minor range is 126.945 to 131.249. Its 50% level at 129.097 is the nearest support.

The second minor range is 123.471 to 131.249. Its 50% level at 127.360 is the second best support.

The major support is a pair of support clusters at 122.950 to 122.360 and 120.991 to 120.263.

Short-Term Outlook

Longer-term, the divergence between the hawkish U.S. Federal Reserve and the dovish Bank of Japan is expected to make the U.S. Dollar a more attractive asset.

Short-term, the USD/JPY may be vulnerable to short-term corrections, however. The first one may be triggered by an intervention by the Bank of Japan (BOJ), however, this isn’t likely after last week’s BOJ monetary policy decision. At its meeting, it pledged to double-down on its efforts to keep interest rates low. Nonetheless, it may only take one bearish economic report to change its mind.

We could also see a correction after the Federal Reserve makes its interest rate announcement on May 4. Traders have known for weeks that the Fed is likely to raise interest rates by 50-basis points. So we have to conclude, it’s already been priced into the market. This makes it vulnerable to a “buy the rumor, sell the fact” situation.