Baxia Markets
May 24, 2023

US Dollar looks to the upside against the Japanese yen

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US Dollar looks to the upside against the Japanese yen


The US dollar experienced a slight retreat at the beginning of Monday's trading session, displaying some erratic behavior. However, the market swiftly reversed course, revealing signs of vitality and forming a hammer-like pattern by midday. Should we successfully surpass Friday's session high, the potential for further gains becomes evident, with the ¥140 level being a feasible target in the near term. Subsequently, an ascent to the ¥142.50 level could become a possibility. The ¥138 level holds significant importance, given its previous role as resistance in forming a substantial triangle.



USD/JPY investors get compensated for holding long positions

Irrespective of the specific outcome, we have witnessed the breakout from a substantial ascending triangle, attracting considerable interest from investors seeking to buy into the market. Over a considerable period, the Bank of Japan has been steadfast in implementing its yield curve control policy, leading to the inevitable depreciation of the Japanese yen. As the Bank of Japan continues to print yen for bond purchases, the market experiences an influx of the currency, consequently impacting its supply. Conversely, the Federal Reserve maintains a tight grip on its monetary policy, indicating a sustained restriction period, even if interest rate hikes may not be imminent. Thus, the “carry trade” concept begins to regain its allure, as investors receive daily compensation for holding long positions in this currency pair.


In the event of a potential pullback, it is worth noting that the 50-Day Exponential Moving Average (EMA) resides around the ¥135 level, which could act as a short-term support level. Nevertheless, my inclination toward shorting this market is non-existent. I firmly believe numerous investors will eagerly participate each time a slightly valuable opportunity presents itself within this pair.


In conclusion, the US dollar's recent performance against the Japanese yen showcases intriguing dynamics. The breakout from an ascending triangle, coupled with the divergent monetary policies pursued by the Bank of Japan and the Federal Reserve, sets the stage for a potentially lucrative "carry trade." While short-term fluctuations may occur, the overall sentiment leans towards long positions as investors seize opportunities to enter the market.

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Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. 


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