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USDJPY rises as BoJ offers unlimited bond purchases

At the start of this week’s trading, the Bank of Japan (BoJ) released the minutes from the March meeting with the central bankers agreeing that the Japanese economy is likely to recover on rising external demand and their continued accommodative monetary policy. There has since been an April meeting and we learned then that the BoJ reaffirmed its dovish stance and will do whatever it takes to contain yields. And again, this morning the BoJ offered to buy an unlimited amount of JGBs at a fixed rate. The yen has been sensitive to the rising price of energy and today Japanese PM Kishida said the country would phase out Russian oil in steps that may have moved the oil futures if Saudi Arabia hadn’t previously lowered the June prices for Asia and Europe.

Forex Analysis

The USDJPY has unwound the drop from the FOMC rate hike, and the daily timeframe bullish trend is not only intact but we’re making new YTD highs. This trend is in my opinion likely to keep grinding higher as the Fed and BoJ monetary policies are diametrically opposed.

Before the London session opened though, the flows into the yen had made it one of the strongest currencies relative to everything bar the US dollar and Canadian dollar. The Swiss franc didn’t receive such flows, so it is hard to say the week has started truly risk-off. I am expecting the flows to reflect the new orders that would have been put on hold last week as we navigated the Tier-1 data points, to come in today and move the markets on relatively low news releases. There is a weakness in the Aussie and Kiwi and that is the Chinese trade data out this morning was very weak. Chinese imports beat expectations, but exports YoY came in at 1.9%, below the expected 3.1% and a far cry from the previous 12.9% in March.

The ActivTrades sentiment indicator shows that 77% of traders on the platform are bearish on the USDJPY and clearly trying to pick a top. The longer this cohort stays short, the more likely the market is going to seek out their stops or margin calls.

Breaking the recent moves down into an intraday chart. There have been a lot of traders trapped by the FOMC move. The stops that would have been placed at the high if the FOMC news candle have been absorbed. We saw a breakout, and retest of that level and now we’re in the expansionary/continuation phase. TP1 was a measured move and that has been hit this morning. The next extension which would give traders in a long a risk to reward ratio of 1:2 terminates at 132.70, but I can see this targeting a higher time frame swing high and the 135.00 big figure.

One way to keep an eye on the trend as it develops is to use an EMA strategy, where you can re-join the momentum trade after a pullback into the 9 & 18 EMAs. When the price crosses back above the 9 EMA or rejects the 18 EMA with a hammer or outside candle (continuation candle pattern) this is the trigger to go long. You can then trail the stop or have a RRR target of 1:2 for each trade.


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