Yesterday, on October 1st, the US Dollar started retracing against the Japanese Yen during the evening trading session. During the American session, USDJPY dropped by 0,32%. The retracement followed a rally hitting the new 6-yer high amid a bigger gap between the USA and Japan’s monetary policies and the start of a new reporting period.
The representatives of the Bank of Japan do not name the desired range of the USDJPY exchange rate. At the same time, they do not mind a weaker national currency.
The retracement is a natural outcome since the rally has been fairly strong (the new 60year high was reached yesterday). Since mid August, the Japanese Yen has already lost 7% of its value against the US Dollar. This happened amid expectations of interest rate hikes by the Federal Reserve. The Fed is about to finish tapering QE3 this month. Most market participants expect the US central bank to start raising interest rates in 2013since the US economic recovery seems to be stable and even accelerating.
At the same time, the Bank of Japan still retain ultra-easy monetary policy. Such a huge gap between the monetary policies of the 2 central banks is definitely affecting the USDJPY exchange rate. At the same time, it makes dollar-denominated assets more interesting for investors.
USJPY: Mid-Term Prospects
As usual, Masterforex-V Academy, a true expert in financial markets, helps us define the near-term prospects of various assets, including currency pairs. This time, it is all about USDJPY, one of the major currency pairs out there.
At this point, the experts report that the currency pair reached a major high yesterday. This is the new 6-year high at 111,07. This is the starting point for the retracement that has been going on since yesterday’s evening. The thing is that after hitting the high the market got overheated and overbought. At the same time, the new reporting period made market players reconsider their positions.
If the current retracement is going further down, we may eventually see the price reaching a key level of support at 108,33. The price has already broken below MAs 55 and 21 defending the upward movement. If the price breaks below MA 233, the retracement may turn into reversal.
Still, the current downward move is not supported by trading volume, which means this is still a bearish reaction to the overheated market of USDJPY.
That is why, the upward scenario with a move up to 109,48 is more likely at this point. Once the resistance level is overcome, we may well see a break above the new high.
