FX intervention fears cause USD/JPY to stall as it approaches 16
Updated
USD/JPY is back trading at a critical level after continued weakness in the Japanese Yen. The pair gathered strength last week following renewed strength in the US dollar, but momentum will likely struggle from here as the 160 level comes into reach. After easily breaking above 150 in April, Japanese officials set the 160 mark as their new target for FX intervention. Back then it cost the pair a 5% reversal in a week, dropping back towards 151.90 before finding support at its 50-day SMA.
Once again we have seen commentary from officials that another round of intervention could ensue if the Yen continues to weaken against the dollar. Continued dovish remarks from the Bank of Japan have weighed on the Yen despite the threats of intervention, causing USD/JPY to regain its bullish momentum. The ascent had been slow and steady for the past two weeks but the rally intensified at the end of last week as the pair got closer to the 160 threshold, as investors wanted to make the most of the remainder of the rally before the reversal.
Whether intervention – if it happens at all – will happen exactly when the pair hits 160 or whether there will be a bit more leeway is unknown. Going on what happened back in April the pair had just breached 160 (160.15) when the pullback started but in the past, we have seen traders approach a past intervention level with caution only for it to not occur at that level. Similar to what happened with the 150 mark back in March.
If we see a similar setup then the pair may hover just below 160 for the next few days as it gathers the momentum to break higher and test the waters. If no intervention happens over the coming days then the pair is likely to see a strong rally as the built-up bullish appetite materialises, but there will continue to be indecision, as traders will be trying to figure out at which level will intervention eventually be triggered. At this point, the reversal could last several days or weeks.
That said, regardless of the short-term market volatility the long-term bias remains firmly upward with no threat of a reversal anytime soon. As long as the hawkish-FED-dovish-BoJ dynamic continues USD/JPY will remain in a bullish setup. So far there is no sign that either central bank will change its positioning meaning that even if FX intervention from Japanese officials continues, the long-term depreciation in the Yen is unavoidable unless the BoJ changes its policy.
Once again we have seen commentary from officials that another round of intervention could ensue if the Yen continues to weaken against the dollar. Continued dovish remarks from the Bank of Japan have weighed on the Yen despite the threats of intervention, causing USD/JPY to regain its bullish momentum. The ascent had been slow and steady for the past two weeks but the rally intensified at the end of last week as the pair got closer to the 160 threshold, as investors wanted to make the most of the remainder of the rally before the reversal.
Whether intervention – if it happens at all – will happen exactly when the pair hits 160 or whether there will be a bit more leeway is unknown. Going on what happened back in April the pair had just breached 160 (160.15) when the pullback started but in the past, we have seen traders approach a past intervention level with caution only for it to not occur at that level. Similar to what happened with the 150 mark back in March.
If we see a similar setup then the pair may hover just below 160 for the next few days as it gathers the momentum to break higher and test the waters. If no intervention happens over the coming days then the pair is likely to see a strong rally as the built-up bullish appetite materialises, but there will continue to be indecision, as traders will be trying to figure out at which level will intervention eventually be triggered. At this point, the reversal could last several days or weeks.
That said, regardless of the short-term market volatility the long-term bias remains firmly upward with no threat of a reversal anytime soon. As long as the hawkish-FED-dovish-BoJ dynamic continues USD/JPY will remain in a bullish setup. So far there is no sign that either central bank will change its positioning meaning that even if FX intervention from Japanese officials continues, the long-term depreciation in the Yen is unavoidable unless the BoJ changes its policy.
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