The USDJPY moved higher on Monday and into Tuesday. A new high was reached on Wednesday at 137.965. That took the price above a swing area between 137.485 and 137.856 (see red numbered circles). The break failed however, and after the US CPI came in weaker than expectations, the price tumbled to a low of 134.65 on Wednesday and a lower low at 134.492 on Thursday (double bottom).
After trading above and below the 200 day moving average currently at 135.46 after the FOMC rate decision yesterday, trading today saw a rotation back to the upside as market participants digested the Fed hawkish stance.
That momentum got an additional boost in early US trading after basing near the 100/200 hour MA. This run came despite lower yields in the US. The 10 year is down -4.6 basis points. The two-year is near flat however.
Looking at the hourly chart, the price has returned back into the swing area between 137.485 and 137.856. The high price reached 137.650 and has backed off a touch from that level.
If there is more selling below 137.485, we could see a rotation back to the downside as traders continue to ponder tighter Fed policy, leading to lower growth, lower stocks, lower inflation, and a lower dollar.
Alternatively a break above 137.856 and then 138.000 would have traders reacting to a more positive technical bias shift.
For the USDJPY the ups and downs this week are a function of what the market is more focused on.
If the storyline is inflation is coming down. Rents and housing are coming down, large sections of the consumer is tapped out of savings due to the ratchet up in inflation and post covid spending, commodity prices are lower, etc, the pair can go lower.
If the storyline is the Fed is still on the kill inflation kick and lower yields can't go much lower (and may go up), the price can scoot higher.
As a result, that may call for traders to sell high and buy low for the time being with stops on breaks outside the extremes. For the USDJPY the extreme is now at 138.00 (the completion of the down and up "lap" seen this week). Does "the market" lean against that area, with stops on a break to the upside? It is a low risk trade opportunity.