Is the dollar in for more losses against the yen?
In case you missed it, recession concerns in the U.S. got traders backing off from their uber hawkish Fed expectations.
It also didn’t help USD/JPY bulls that Bank of Japan’s (BOJ) new head honcho Kazuo Ueda is dropping hints that he and his team are open to tweaking their yield curve control (YCC) program to allow short and long-term interest rates to rise a little from their current levels.
USD/JPY 1-hour Forex Chart by TradingView
The shifts in U.S. and Japanese monetary policy expectations likely contributed to USD/JPY getting rejected at the 135.00 area.
In fact, USD/JPY is now trading closer to 133.50, which is riiiight at a 1-hour trend line support that’s been around since late March.
Aside from that, 133.50 also lines up with a resistance zone in early April AND the 50% Fibonacci pullback of last week’s upswing.
How low can the dollar go against the yen?
I wouldn’t discount a mid-week reversal just yet.
If this week’s earnings reports surprise to the upside, or if Tokyo’s core CPI doesn’t look like it would support a tighter monetary policy bias, then USD/JPY could maintain its April uptrend.
But unless we see catalyst changes in the next trading sessions, USD/JPY is more likely to extend its intraweek downtrend.
That is, markets will continue to price in weaker earnings and growth data and the U.S. as well as a possible bias shift in the BOJ’s policy decision scheduled on Friday.
USD/JPY could break below its trend line support and revisit areas of interest like 133.00 or 132.75.
Breakout traders can wait for a clear trend break and aim for the inflection points that we’ve marked.
Not sure where to place your entry and exit levels? Take note of USD/JPY’s average volatility so you don’t get knocked out of your trades too soon!
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