Facts:
- USDJPY halted its decline within the 100-day exponential moving average.
- The USDJPY exchange rate remains above the 50- and 100-day exponential moving averages.
Recommendation:
- Long position (BUY) on USDJPY at market price
- Target price (Take Profit; TP): 148,800 (TP1), 150,600 (TP2)
- Stop Loss (SL): 146.400
Source: xStation5
Explanation
One of the main arguments for a long position on USDJPY is the continuing divergence in monetary policy between the Fed and the BoJ; The Bank of Japan remains very cautious about tightening policy and keeps rates at very low levels, while the Fed limits cuts to potentially only two in 2025 if current money market expectations remain unchanged. The market expects the BoJ to refrain from major rate hikes until at least March 2026, which keeps the yen carry trade attractive. The dollar remains historically weak against a basket of currencies, but with the US economy stabilizing and global investor sentiment improving, there is a chance for a technical rebound against the yen. Moreover, at this point, it seems that even with a change in investor sentiment towards interest rates in the US, the Federal Reserve will continue to verbally caution against aggressive monetary easing, which could fundamentally favor the dollar. It is also worth remembering that USDJPY is one of the most liquid instruments, so caution is advised due to its high volatility.
Methodology
The recommendation was developed based on a fundamental analysis of monetary policy in the economies in question and a technical analysis of the USDJPY contract chart. The direction of the recommendation was determined using exponential moving averages (bullish breakout above the 50-day and 100-day EMA) and expectations regarding the policies of the relevant central banks (BoJ and FED). Take Profit and Stop Loss levels were set based on price action. The Stop Loss was set slightly below the last low, while the Take Profit levels were set at the July and August highs.
Appendix 1:
Expected path of interest rate changes in Japan. Source: Bloomberg Financial LP
