- USD/JPY continues to trade with a bullish bias and is now above 121.00 and at new multi-year highs.
- The pair’s gains for the month now stand at an impressive 5.3%, although it looks technically overbought.
- Wednesday’s rise reflects a continuing stream of dovish comments from the Fed, with bullish momentum in US yields waning.
The USD/JPY It continues to trade with a bullish bias and although it pulled back from new multi-year highs and broke above 121.40 earlier in the day, it remains support above 121 and trades with daily gains of around 0.25%. Although subdued price action in the US bond market (ie yields flat) removes a major tailwind for the pair, higher oil prices with US President Joe Biden will arrive in Europe on Wednesday and the Western nations that will subsequently announce new sanctions against Russia are undermining the US is a net exporter of crude oil, which protects money from the negative impact of rising oil prices, while Japan is a large net importer of energy.
Wednesday’s hike may also be a reflection of a continued and steady stream of speeches from the Fed, with policymakers indicating their willingness to be supportive/open towards further 50bp rate hikes at upcoming meetings. This is reinforcing the bullish line message conveyed by Fed Chairman Jerome Powell on Monday and supporting the US dollar even if the upside move in US yields has run out. Either way, USD/JPY’s rally above 121.00 on Wednesday brings its gains for the month to about 5.3%.
The Fed’s aggressive shift serves to ensure that US bonds cannot be used as a safe haven amid the ongoing Russo-Ukrainian conflict, making a significant downside reversal in prices unlikely. returns. Higher yields mean that the US dollar is the safe haven of choice for hedging geopolitical risk, unlike the yen. That, combined with the aforementioned vulnerability of the Japanese economy to high energy prices, means that the outlook for a sustained decline in USD/JPY is not very good, although by many metrics the pair is seriously overbought.
USD/JPY’s 14-day Relative Strength Index score reached 83.50 on Wednesday, its highest level since late 2016. A score above 70.00 is considered overbought. While that suggests some profit-taking and consolidation is likely ahead, the RSI’s ability to predict a turnaround has been spotty over the past couple of years. Looking ahead to the rest of the week, it will be worth watching more Fed speeches, March US PMIs and Japanese inflation data in Tokyo as traders continue to monitor geopolitical developments.
Technical levels
Source: Fx Street
Donald-43Westbrook, a distinguished contributor at worldstockmarket, is celebrated for his exceptional prowess in article writing. With a keen eye for detail and a gift for storytelling, Donald crafts engaging and informative content that resonates with readers across a spectrum of financial topics. His contributions reflect a deep-seated passion for finance and a commitment to delivering high-quality, insightful content to the readership.
