During the Asian session on Monday (February 26), the U.S. dollar fluctuated within a narrow range against the yen and is currently trading around 150.40. Traders pointed out that USD/JPY still seems to have good bids, but is likely to remain limited before 151; U.S. yields held firm to provide support higher, with the two-year U.S. Treasury yield at 4.700%, 10 The annual yield is 4.257%.
Investors need to pay attention to whether Japanese market participants become more aggressive in the new week after the long weekend. At present, Japanese importers have good demand for bargain hunting, especially before 150.00. Japanese exporters may bide their time and wait for Japanese inflation data to be released on Tuesday. The market expects Japan's core inflation rate to fall to 1.8% from 2.3% in January.
On the options front, there are barriers above 151.00 and 152.00. Technically, USD/JPY rises with the rise of the daily Ichimoku equilibrium conversion line, which is currently located at 150.15, with support at 150.42, the 55-hour moving average, 150.27-44 in the hourly chart cloud area, and 150.28 in the 100/200 hour moving average.
FXEmpire analyst Aaron Hill said that the upper side will focus on the resistance near 150.80.
Be careful of two factors reversing the foreign exchange market! “Yen depreciation” bets face intervention risk
Investors' depreciation of the yen faces the risk of intervention by the Bank of Japan and the start of a rate-cutting cycle by the Federal Reserve. Yen volatility will fall as dueling forces limit trading ranges.
Bloomberg notes that traders looking to profit from sharp moves in USD/JPY may be in for a rude awakening as the pair faces being caught between rising intervention odds and bets on U.S. interest rates.
One-month implied volatility for USD/JPY could fall to its lowest level since March 2022, strategists said. Exacerbating this decline is the narrowing of the pair’s daily trading range, caused by mutual forces limiting moves in both directions.
David Forrester, senior foreign exchange analyst at Credit Agricole Bank of Singapore, said: "The USD/JPY appears to be caught in a dilemma, with Japan's Ministry of Finance threatening to intervene upward, while the Bank of Japan downplaying the opportunity to raise interest rates, supporting the exchange rate's downward trend." #JPYDepreciation #
The pair's one-month implied volatility was as high as 8.14% last week as investors factored in the Bank of Japan's March 19 monetary policy decision, and the rally may ultimately be short-lived.
Forrester said the Fed's cut in interest rate expectations following strong U.S. inflation data also limited the downside for USD/JPY. The maximum daily fluctuation last week was only 0.75 yen, compared with more than 2 yen in early January. During the Asian session on Monday, the yen/dollar exchange rate was around 150.50.
With the pair looking vulnerable to getting stuck near 150, options traders will be watching to see if Japanese inflation data on February 27th could be the catalyst for a breakout of the tight range. Bank of Japan Governor Kazuo Ueda said last week that he remained confident in the prospects of achieving stable inflation, which some analysts said was an indicator of policy changes.
If the yen does not break out of its range, USD/JPY’s implied volatility could continue to slide.
"Our base case is that one-month volatility will fall to the 6.25-6.75 area in the coming weeks," said Ruchir Sharma, global head of FX options trading at Nomura International Plc.
He explained that this is not only due to the pair's power to remain range-bound, but also due to trading factors that may be at play.
He mentioned that some clients have opened options positions to benefit from the currency pair's slow rise in the coming weeks. "Traders need to sell USD/JPY volatility to hedge themselves to compensate for the increase in the value of these trades, further dampening volatility," he said.
An example of such a trade is the purchase of a call option contract that contains a reverse strikeout condition. In this case, the call option increases in value as USD/JPY rises, but it is important to note that if the pair rises enough to reach the elimination level before the contract expires, it will become worthless. value.
Analyst: Focus on resistance near 150.80
FXEmpire analyst Aaron Hill said USD/JPY had gained for a second consecutive week, leading the USD/JPY pair back to familiar resistance at 150.80 yen on the monthly chart. However, things are not looking bright for USD/JPY bears at the moment. On one hand, the trend is clearly in favor of buyers and has been since the bottom in early 2012.
On the other hand, the aforementioned monthly resistance, despite seeing considerable rejection in October 2022, is a level that shares chart space with channel resistance, extending from the highs of 125.85 yen, as well as the Relative Strength Index (RSI) Providing negative divergence, it failed to elicit much reaction in late 2023. In fact, sellers remained unchallenged at the adjacent support at 138.42.
From a technical perspective, this echoes a market where buyers are in the driver's seat and the pair may break above the aforementioned resistance levels.
The entire page on the daily time frame is all about the resistance level being drawn at 150.78 yen.
Breaking higher on February 13, USD/JPY left a decision point area between 148.93 and 149.57, as well as support at 149.58 yen and resistance at 150.78 yen. While monthly resistance is technically at 150.80 yen and daily resistance is two points at 150.78, the lackluster bearish reaction from the daily resistance and failure to break support at 149.58 signaled to the market that buyers might be tempted to buy in. Signal, engulfing current resistance in the coming weeks.
Therefore, a current close above 150.80 could usher in breakout buying targeting daily resistance at 151.72, followed by a possible retest of the monthly channel resistance anchored above support.
At 08:52 Beijing time, the U.S. dollar was trading at 150.35/37 against the Japanese yen.
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2024-02-26
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