USD/JPY: The Big Zone is Almost Back in-Play
USD/JPY has continued to rally after last month's false breakout at the 140.00 handle, which is part of a large zone of longer-term support spanning from 139.28 up to 140.30.
I tracked that setup in these ideas, first with the support test itself:
and then the initial bounce:
and then the build of a falling wedge + the higher-low from the FOMC rate cut:
and then a focus on higher-low support at 142.50 or 141.69, the latter of which held the low a few weeks ago before buyers pushed a major move in the pair:
Now? USD/JPY is nearing a make-or-break point on the chart with the 150-151.95 zone. This is the same spot that caught the highs in the pair in Q4 of 2022 and 2023. It held the highs through Q1 trade until, eventually, an above-expected CPI print prodded a run on stops above that price followed by a bullish breakout to above the 160.00 handle.
Now that level is almost back into play and it seems that there's not many bears left; much of what I'm seeing on social media seems tilted bullish despite the fact that the main driver behind the initial trend - the carry trade - is still widely-expected to begin going the other way. While US rate cut bets have been pushed out given a strong spate of recent data, they still persist for 2025 trade with a current probability of > 62% that the Fed cuts by at least 150 bps into the end of next year.
That would imply another 50 bps this year, and 100 bps next year and 100 bps of cuts in a year is traditionally a strong cutting cycle.
This, of course, would narrow the rate divergence in the pair, even if the Bank of Japan is not thinking of hiking rates and that could further nullify the attractiveness of long-side carry.
So, while near-term price action remains bullish, the 150-151.95 zone presents an opportunity for those long-term carry traders to get out of the trade with a minimum of damage to the bigger-picture trend.
Notably, the 50% mark of the sell-off is near the middle of that zone at 150.77. - js
I tracked that setup in these ideas, first with the support test itself:
and then the initial bounce:
and then the build of a falling wedge + the higher-low from the FOMC rate cut:
and then a focus on higher-low support at 142.50 or 141.69, the latter of which held the low a few weeks ago before buyers pushed a major move in the pair:
Now? USD/JPY is nearing a make-or-break point on the chart with the 150-151.95 zone. This is the same spot that caught the highs in the pair in Q4 of 2022 and 2023. It held the highs through Q1 trade until, eventually, an above-expected CPI print prodded a run on stops above that price followed by a bullish breakout to above the 160.00 handle.
Now that level is almost back into play and it seems that there's not many bears left; much of what I'm seeing on social media seems tilted bullish despite the fact that the main driver behind the initial trend - the carry trade - is still widely-expected to begin going the other way. While US rate cut bets have been pushed out given a strong spate of recent data, they still persist for 2025 trade with a current probability of > 62% that the Fed cuts by at least 150 bps into the end of next year.
That would imply another 50 bps this year, and 100 bps next year and 100 bps of cuts in a year is traditionally a strong cutting cycle.
This, of course, would narrow the rate divergence in the pair, even if the Bank of Japan is not thinking of hiking rates and that could further nullify the attractiveness of long-side carry.
So, while near-term price action remains bullish, the 150-151.95 zone presents an opportunity for those long-term carry traders to get out of the trade with a minimum of damage to the bigger-picture trend.
Notably, the 50% mark of the sell-off is near the middle of that zone at 150.77. - js
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