USD/JPY Fresh Four-Month Lows on USD Weakness

USD/JPY Talking Points:

USD/JPY continued to slide earlier this morning, setting a fresh four-month low. While the 150 break two weeks ago was driven by the JPY side after a stronger CPI print, the more recent break was driven by USD-weakness on the back of recession fears in the United States.
There remains potential for larger carry unwind scenarios, and that’s something that could have a detrimental effect on U.S. equities.
Beware the bear trap: USD/JPY has set multiple fresh lows over the past month but outside of the CPI-fueled breakdown on the 20^th, there’s been a penchant for bear traps along the way.

USD/JPY remains well-elevated on a long-term basis, as the pair has just crossed the 23.6% retracement of the 2021-2024 major move. While the pair was catapulted higher via the carry trade, with higher U.S. inflation starting the move in 2021 and FOMC rate hikes driving it into another gear in 2022, bulls have continued to hold on even as the Fed has cut rates multiple times and the Bank of Japan has hiked rates twice. That’s compressed the rate divergence between the two economies but we haven’t yet seen recurrence of the carry unwind scenario that swept global markets by storm last summer, when a swell of Yen-strength drove a global de-leveraging event across several different markets.

USD/JPY Weekly Chart

Chart prepared by James Stanley; data derived from Tradingview

USD/JPY Shorter-Term

While it’s been a steady stream of lower-lows and highs from the weekly chart above, shorter-term has been a more challenging backdrop in the pair as sellers haven’t been able to show much for extension when given the opportunity at prints of fresh lows. There was the CPI-fueled breakdown on the 20^th of February, and that’s what initially pushed the pair back below the 150.00 handle; but selling pressure slowing below the big figure and that’s led to a grinding backdrop over the past couple of weeks.

This highlights the fact that pullbacks to lower-high resistance could be considered for bearish trend continuation, while chasing breakdowns may be seen as a less attractive strategy given the pair’s recent penchant for showing bear traps.

So far this week, there’s already been three clean tests of resistance at prior supports, with Monday’s test of 150.77, yesterday’s test of 150.00 or this morning test of 149.23, which finally pushed the pair below the 23.6% retracement of the longer-term move looked at above which plots at 147.94.

USD/JPY Daily Price Chart

Chart prepared by James Stanley; data derived from Tradingview

USD/JPY Shorter-Term Levels

The four-hour chart shows recent gyrations clearly, with the longer-term Fibonacci level at 147.94 coming into hold the highs for the two most recently completed four-hour bars. But, the past four-hour candle closed in positive territory while also setting a higher-high above the previous, with resistance showing at prior support of 148.40. This keeps the door open for a larger pullback, and above that, 149.23 is in-play and then 150.00 is above that.

For next support, the 61.8% retracement of the same Fibonacci setup that showed 149.23 as the 50% marker plots just a little lower, at 146.95.

USD/JPY Four-Hour Chart

Chart prepared by James Stanley; data derived from Tradingview

--- written by James Stanley, Senior Strategist

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

FOREX.com is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment and CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.forex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.forex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 42.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.

Delayed London Stock Exchange (LSE) Data

The London Stock Exchange (LSE) market data displayed or referenced on this website is provided on a delayed basis and is not in real time. The delay period may vary but is typically at least 15 minutes. This data is intended for information purposes only and should not be relied upon for trading, investment, or other financial decisions. We do not guarantee the completeness, reliability, or suitability of the data for any particular purpose. Users should consult real-time data sources and obtain professional advice before making any financial decisions.