USD/JPY Begins Test of Long-Term Zone

USD/JPY Talking Points:

Bears have continued to push this week and bounces have been getting more and more shallow. At this point price has started to re-test a long-term support zone, with a bounce currently showing at the 23.6% retracement of the 2021-2023 major move.
As I’ve been saying for a while now, the fundamental case behind the long side of USD/JPY hasn’t been this dim since before the Fed began hiking rates in 2022. There appears to be remaining carry traders holding on but at the FOMC rate decision next week, the start of a cutting cycle could further diminish the carry, thereby compelling more unwind.
I’ll be looking into these setups in the Tuesday webinar and you’re welcome to join, click here for registration information.

USD/JPY has continued to draw down and with the FOMC expected to shift into a cutting cycle next week, the enthusiasm for the long side of the pair gets less and less attractive. While rollover remains positive as of this writing, those rates can tighten further and given the fact that we haven’t yet seen 38.2% of the 2021-2024 major move taken-out, it’s logical to imagine that there’s some remaining carry traders that are and have been holding on.

Carry unwind can be an intense theme, such as we saw show up in July. We saw similar episodes in November of 2022 and 2023, but for each of those the fundamental case was lacking continuation potential as the Fed wasn’t yet in a position to cut. That’s not the case now with the FOMC expected to reduce rates at next week’s rate decision and as such, we’ve seen continued bearish movement in USD/JPY.

The pair has dropped to a fresh 2024 low at this point as longer-term carry has continued to unwind. USD/JPY has tagged the top-end of a longer-term zone with 140.30 coming into play, which is both the 23.6% retracement of the 2021-2023 major move – and the swing-low from December of last year.

USD/JPY Weekly Price Chart

Chart prepared by James Stanley, USD/JPY on Tradingview

USD/JPY For Next Week

For next week I’m expecting USD/JPY to share relationship with broader US rates themes. The more-dovish that the Fed sounds, the less attractive the long side of the carry, which could compel further unwind from longer-term holders.

Timing with such scenarios can remain as a challenge and the past month-and-a-half is proof of that. But, notably, bounces have been growing more and more shallow and that can be symptom of longer-term bulls using those bounces to further reduce exposure to the pair.

For support – the 100 pips below current lows is a big spot, and if sellers can trade through that I would consider that a notable item. The 140.00 psychological level is of importance and below that, the 38.2% Fibonacci retracement of the 2021-2024 major move plots at 139.28.

USD/JPY Daily Price Chart

Chart prepared by James Stanley, USD/JPY on Tradingview

--- written by James Stanley, Senior Strategist

The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Products and services available depend on your location and the entity holding your account. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Please note that foreign exchange and other leveraged trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved, seeking independent advice if necessary.

FOREX.com is a trading name of GAIN Global Markets Inc. which is authorized and regulated by the Cayman Islands Monetary Authority under the Securities Investment Business Law of the Cayman Islands (as revised) with License number 25033.

FOREX.com may, from time to time, offer payment processing services with respect to card deposits through StoneX Financial Ltd, Moor House First Floor, 120 London Wall, London, EC2Y 5ET.

GAIN Global Markets Inc. has its principal place of business at 30 Independence Blvd, Suite 300 (3rd floor), Warren, NJ 07059, USA., and is a wholly-owned subsidiary of StoneX Group Inc.