USD/JPY Rally Hits a Speed Bump Amid BoJ Speculation
With USD/JPY’s volatility surging amidst rumours of impending Bank of Japan (BoJ) intervention, let’s examine the pivotal factors driving this market.
Monetary Policy Divergence Fuels Rally
USD/JPY has surged since the start of the year, propelled by a notable divergence in monetary policy between the Federal Reserve and BoJ. Last Friday, the BoJ's decision to maintain benchmark interest rates surprised traders, diverging from the Fed's commitment to higher rates. This stark policy contrast spurred USD/JPY higher.
However, in Asian and early European trading on Monday, volatility spiked, leading to a reversal in Friday’s gains amid speculation of BoJ intervention. Tokyo's recent warnings of potential intervention amplified suspicions, marking a potential shift from their previous hands-off approach.
Technical Analysis: Signs of Exhaustion
USD/JPY's daily candle chart indicates signs of short-term exhaustion, with a sharp reversal following a break above a key resistance level earlier this month.
If USD/JPY were to conclude the trading day near its intra-day lows, it would complete a bearish two-bar reversal pattern. This scenario could potentially pave the way for a more pronounced pullback, leading the currency pair towards the confluence of support levels formed by the broken resistance, anchored volume-weighted average price (VWAP), and ascending trendline.
Past performance is not a reliable indicator of future results
Short-Term Volatility: Hourly Candle Chart
USD/JPY’s hourly candle highlights the increase in short-term volatility with the hourly average true range (ATR) spiking.
A bearish V-shaped reversal pattern indicates opportunities for day traders to consider shorting intra-day pullbacks. However, individuals considering overnight positions should exercise caution due to the heightened volatility associated with speculation regarding potential intervention from a central bank.
Past performance is not a reliable indicator of future results
Disclaimer: This is for information and learning purposes only. The information provided does not constitute investment advice nor take into account the individual financial circumstances or objectives of any investor. Any information that may be provided relating to past performance is not a reliable indicator of future results or performance. Social media channels are not relevant for UK residents.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 84.01% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.
Monetary Policy Divergence Fuels Rally
USD/JPY has surged since the start of the year, propelled by a notable divergence in monetary policy between the Federal Reserve and BoJ. Last Friday, the BoJ's decision to maintain benchmark interest rates surprised traders, diverging from the Fed's commitment to higher rates. This stark policy contrast spurred USD/JPY higher.
However, in Asian and early European trading on Monday, volatility spiked, leading to a reversal in Friday’s gains amid speculation of BoJ intervention. Tokyo's recent warnings of potential intervention amplified suspicions, marking a potential shift from their previous hands-off approach.
Technical Analysis: Signs of Exhaustion
USD/JPY's daily candle chart indicates signs of short-term exhaustion, with a sharp reversal following a break above a key resistance level earlier this month.
If USD/JPY were to conclude the trading day near its intra-day lows, it would complete a bearish two-bar reversal pattern. This scenario could potentially pave the way for a more pronounced pullback, leading the currency pair towards the confluence of support levels formed by the broken resistance, anchored volume-weighted average price (VWAP), and ascending trendline.
Past performance is not a reliable indicator of future results
Short-Term Volatility: Hourly Candle Chart
USD/JPY’s hourly candle highlights the increase in short-term volatility with the hourly average true range (ATR) spiking.
A bearish V-shaped reversal pattern indicates opportunities for day traders to consider shorting intra-day pullbacks. However, individuals considering overnight positions should exercise caution due to the heightened volatility associated with speculation regarding potential intervention from a central bank.
Past performance is not a reliable indicator of future results
Disclaimer: This is for information and learning purposes only. The information provided does not constitute investment advice nor take into account the individual financial circumstances or objectives of any investor. Any information that may be provided relating to past performance is not a reliable indicator of future results or performance. Social media channels are not relevant for UK residents.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 84.01% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.
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