- The yen manages to stop the fall in a context of falling markets.
- The dollar remains firm throughout the market.
- USD/JPY downside seen as a correction for now.
USD/JPY is dipping modestly on Wednesday, pulling back after hitting the highest levels since 1998. The pair tested the high of 136.70 in the Asian session, but then changed direction and bottomed in European hours at 135.80.
The yen managed to stabilize in the market, favored by the negative climate in the equity markets due to fears about the state of the global economy. All the ground Wall Street gained on Tuesday, it is giving back on Wednesday. Major index futures are falling 1.5% on average. Treasury bond yields are falling on higher demand for safe-haven assets. The 10-year term stands at 3.21% and the 30-year term at 3.29%.
The context of lower yields and falling markets is often ideal for the yen. Although the Japanese currency rises, it does so very modestly, which would be reflecting a persistent background weakness in the yen.
Analysts at TD Securities explain that USD/JPY convincingly broke above 135 and see another move higher possible. “The 140 level offers psychological resistance, but we believe that 148-150 will be more formidable from a technical point of view. We see limited scope for USD/JPY declines to continue, especially as the Bank of Japan has shown that it is willing to risk market performance to regain credibility,” they said.
In the rest of the day, what happens in the equity markets could be key for the USD/JPY, which is trading just below 136.00, with a bearish intraday tone. The economic calendar shows as a key event the presentation of Jerome Powell, the president of the Fed before the Committee on Banking Affairs of the Senate. In addition, several Fed officials such as Thomas Barkin, Charles Evans and Patrick Harker will speak in public. The Treasury will place debt at 2 and 20 years.
Technical levels
Source: Fx Street
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