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USD/JPY, GBP/JPY, EUR/JPY setup - Currency intervention effect mostly undone

By Daniela Hathorn

13:05, 27 September 2022

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Digital financial composite illustration with Yen symbols. Source: gettyimages


The focus this week has been on the nosedive the Pound has been experiencing, but let's not forget that Japanese authorities intervened last week to keep the same thing happening to the Yen. Officials sold the move as a means of “protecting the Yen from excess volatility” as the currency has fallen 26% against the US dollar since March, and it is the first time since 1998 that Japan has intervened by buying Yen. The measure did provide some short relief for the pair as it dropped back to 140.30 on the announcement.

But traders remain skeptical that the Yen can be protected from further depreciation without interest rate hikes from the Bank of Japan (BoJ). After Thursday’s meeting left policy unchanged, USD/JPY took another step higher before the intervention took place, and as BoJ governor Kuroda continues to defend ultra-loose monetary policy for the foreseeable future, we may see further intervention in the currency market from Japanese officials.

But this only provides a temporary reprieve, which is evident by the moves seen in USD/JPY since Friday. The fundamentals remain unchanged and the Dollar is continuing to surge to new highs as the Federal Reserve maintains its strong hiking schedule. 146 Yen per Dollar seems to be the breaking point for Japanese officials and so we can expect further volatility for the pair as it approaches this level, as traders will anticipate further intervention.


USD/JPY Daily Chart: back within ascending channel

USD/JPY daily chart. Photo: Source: tradingview


Last Thursday’s retracement has provided a good base for support outside of the ascending channel that has been in play since March. The range between 140.60 and 140.00 is likely to bring on further buying momentum as traders look for a good “buy-the-dip” opportunity on the basis of further USD appreciation. If that doesn’t hold, the area around 138.50 has offered good support in the past and is also the 23.6% Fibonacci retracement from last Thursday’s high.

USD/JPY buyers should tread with caution given any possible further intervention from Japan, but it is likely that the pair will continue its bullish trend as the rate differential trade continues to unfold. As long as the Fed sticks to its hiking path and the BoJ denies the Japanese economy from higher rates, then USD/JPY will straighten as the gap between US10Y and JP10Y widens.

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Chart: US10Y-JP10Y vs USD/JPY 

USD/JPY moving alongside the USD and JPY rate differential. Photo: Source: tradingview


GBP/JPY is consolidating from its recent losses which were aided also by the fiscal stimulus unveiled on Friday. The pair marked its lowest level since July 20th last year, shedding over 11% in two weeks, with almost 90% of that drop happening since last Thursday. The fundamentals on both sides of the pair played in favour of the drop, with the Yen rallying because of the currency intervention and the Pound plummeting because of the fears of stagflation after the budget was released. This culmination of events has led to a pretty spectacular move in GBP/JPY leading to the biggest weekly range since the start of the Covid-19 induced selloff back in March 2020.

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This intensified pullback has caused the moving averages on the daily chart to inverse. Both the 20-day and 50-day SMAs have dropped below the 100-day line, suggesting that short-term momentum is quickly turning bearish. But on the weekly chart, the SMAs are still strongly positioned in favour of bullish continuation, suggesting that the longer-term momentum has remained intact despite the current pullback.

So far today, buyers are keeping the pair well away from the lows seen yesterday and we could be heading towards a positive weekly close. But as with USD/JPY, buyers should have good risk management in play if they wish to take up a trade in GBP/JPY because of the risk of further intervention from Japan, which could trigger another bearish reversal. If that is the case, the area around 150.90 could offer some good support in the short-term.


GBP/JPY Weekly chart

GBP/JPY weekly chart. Photo: Source: tradingview


EUR/JPY is struggling a little more to undo the effects of the currency intervention. The pair was able to hold on to support around the 50-day and 100-day SMA at the end of last week, but has struggle to build momentum higher from there. Current resistance is sitting around 139.50 and once the pair clear this area we may start to see the bullish trend resume towards last week’s highs around 143.20, at which point previous resistance may start to set in.

On the downside, Monday’s low of 137.30 may hold again if we see any further pullback, but a very interesting area of support is the 50% Fibonacci retracement at 134.98 from the September 12th highs.


EUR/JPY Daily chart

EUR/JPY daily chart. Photo: Source: tradingview

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