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USD/JPY analysis: Volatility, resistance levels, and swap benefits

usdjpy analysis, forex trading

The U.S. dollar's trading session on Thursday showcased notable volatility. Initially, there was a slight decrease in its value, suggesting a potential downturn. However, the currency rebounded, demonstrating its underlying strength. This pattern of fluctuation, although common in financial markets, signifies a potential 'buy on the dip' opportunity for investors. In such scenarios, when a currency momentarily weakens, it can be an advantageous moment for buying, in anticipation of a future increase in value.

Observing the market trends, there seems to be a formation of an ascending triangle in the USD/JPY currency pair. This is a technical chart pattern indicating gradual strengthening. The ¥152 level stands out as a strong resistance point that the market has struggled to surpass. The release of the upcoming jobs report on Friday is anticipated with interest, as it could provide the necessary momentum to break through this resistance. If this does not occur, a downward adjustment towards the ¥150 level might be expected, which could be seen as another strategic entry point for traders.

The market's current dynamics are significantly influenced by the difference in interest rates between the United States and Japan. This interest rate differential is a critical factor for traders, as it impacts the profitability of holding certain currency pairs like the USD/JPY. This is particularly true for those who hold positions overnight, as they earn or pay interest rate differences, known as swap. The present situation, where the U.S. and Japan have differing interest rates, creates a favorable condition for earning daily swap on these trades. This condition is likely to remain until there is a shift in the monetary policies of either of the central banks involved.

At the moment, the ¥150 level is viewed as a temporary support level in the market, partly because the 50-day Exponential Moving Average (EMA) is nearing this price point. EMAs are commonly used indicators in trading that help identify the trend direction and potential support or resistance levels.

The proximity of the 50-day EMA to ¥150 lends credence to its role as a support level. Over a longer period, there is an expectation among market participants that the currency pair might target the ¥155 level. Achieving this level might take some time, but the market has a considerable number of buyers, who are motivated by the swap benefits of holding the USD/JPY pair. This ongoing interest from buyers provides a solid foundation for a positive market outlook.

usdjpy analysis, forex trading
USD/JPY daily chart, MetaTrader, 04.05.2024



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