The Yen has been dominating foreign exchange commentaries for the last couple of years as the most volatile of the major currencies. Strong interest rate differentials have led to good trend moves when most of the other majors have been trading in more rangebound conditions as other jurisdictions have largely moved interest rates in tandem after the pandemic.
Q3 in Review
Fundamentals had pushed UsdJpy to 34-year highs above the key 160 level as the US maintained high rates whilst the Bank of Japan remained relatively tight despite making their first upward move in interest rates in decades. Intervention from the Ministry of Finance and the Bank of Japan provided short term support for the Yen both against the greenback and on the crosses, however these moves were relatively short lived as underlying fundamentals pushed the Yen back towards those lows again.
A clear indication from the Federal Reserve Bank in July led to a change in the those conditions, pushing US treasury yields down from multi-year highs, and most traders now feel that the tide has turned as the FOMC started it’s easing cycle in September and the Bank of Japan remains relatively hawkish – with some in Tokyo now calling for another two hikes before the end of the year.
Q4 Ahead
Data will still play a major role in short-term moves in the pair and can always disrupt that trend, however most longer-term players are now looking for a downward trend in the last quarter. There is no doubt that geopolitical factors will have a big part to play in the direction of the pair in Q4, the recent change in leadership for the Japanese ruling party has seen some strong moves, however the upcoming US Presidential Election is likely to play an even bigger part in the direction of the UsdJpy. In addition to the two local jurisdictions, overall global geopolitical concerns seem to be increasing in the Middle East as well as other parts of the world and this could see the Yen’s appeal as a haven currency increase as we progress to the new year.
The Longer-term Daily chart now shows the recent volatility that we have seen in the pair and many traders are expecting that to continue. Initial resistance now sits around September highs near 146.50 with longer-term resistance up on the 200-Day Moving average at 150.96. Initial support is now placed near the September low just above 139.50 with longer-term trendline support now around the 137.45 level.
