Daily Market Recap - USDJPY

USDJPY reversed its losses on Friday amid a rebound in risk sentiment. The pair had a turbulent trading week, falling to nearly 101 before recovering towards the 107 level. An upsurge in the US equity markets and treasury yields helped fuel the rebound in the USDJPY late in the week.

As central banks around the world continue to pledge more and more resources to combat the panic in the markets, investors are left guessing the direction as short term price movements become harder to predict. The Bank of Japan (BoJ) conducted an unscheduled bond-buying on Friday to help fight the increase in yields as the Japanese government bond prices tanked. The US Federal Reserve‘s surprise rate cut earlier this month combined with a seemingly return to quantitative easing last week, has created headaches for traders’ strategies.

From a technical perspective, short term pullbacks will likely be bought into, barring any increase in a panic over the coronavirus pandemic, which could send traders flocking back to the yen. The USDJPY has recovered almost 50 percent of its value since February highs. Bulls will likely make a push towards the 109-handle in order to reassert control over the pair. The 50-day moving average will prove a challenge to cross and should act as the immediate resistance level for the upcoming session. However, traders should keep in mind the potential for a US rate cut in the upcoming week, which will likely weigh heavily on the USDJPY. We can expect increased volatility throughout the week with a bearish bias in the run-up to the rating announcement. Support should be expected around the 107, 106 and 104 levels.

(Chart Source: Tradingview 15.03.2020)

Looking ahead, markets will be eagerly awaiting the interest rate decision by the US Federal Reserve on Wednesday to see how the central bank plans to react to the threat of a recession on the horizon. Policy analysts are expecting a further rate cut of 50 basis points at a 32 percent probability, with an even larger probability for a full 100 basis point cut at 68 percent. Should such a drastic rate cut come into effect, we will likely see a large increase in demand for gold and yen.

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.