Japanese Yen analysis: USD/JPY’s big bearish reversal ahead of the Fed

Japanese yen takeaways

The yen is catching a safe haven bid amidst turmoil in the US banking sector.
Treasury Secretary Yellen’s announcement that the US could hit its debt ceiling in early June is also contributing to USD/JPY weakness.
A dark cloud cover candlestick pattern and bearish RSI divergence could see USD/JPY fall toward 135.00 if the Fed comes off as less hawkish than expected.

With major US indices seeing one of their worst days of the year, we’re seeing a good old-fashioned “risk off” day across all major markets. Usually, this means strength in the world’s reserve currency, but in this case, the source of the market’s concern is US regional banks, so the greenback isn’t flowing to the top of the FX relative strength charts; instead, the “other” major safe haven currency, the Japanese yen, is the big winner today.

Despite moribund monetary policy, seemingly no prospect for an imminent increase in interest rates, and a series of market holidays that will keep Japanese traders away from their desks for the rest of the week, the Japanese yen could be the big beneficiary from a bout of risk aversion stemming from concerns about the US financial system.

In addition to today’s acute worries about the stability of US regional banks, Treasury Secretary Janet Yellen spooked traders yesterday by announcing that the US could hit the limits of the debt ceiling as soon as June 1^st, making the long-simmering debt ceiling drama an imminent threat for policymakers. While a last-minute solution will almost certainly be cobbled together as always, it is at least notable that the “last minute” is now much sooner than many had expected 24 hours ago, weighing on the US dollar.

Japanese yen technical analysis: USD/JPY’s bearish reversal

Looking at the daily chart, USD/JPY rallied all the way up to approach its year-to-date highs near 138.00 earlier today before reversing back lower. With only a couple hours left in the “trading day,” the pair is showing a clear dark cloud cover candlestick pattern, signaling a shift from buying to selling pressure and marking a potential near-term top for the pair:

Source: StoneX, TradingView

At the same time, the 14-day RSI is showing a potential bearish divergence with the March highs, showing waning buying pressure. If the Fed fails to deliver a hawkish enough message tomorrow (or even refrains from hiking rates entirely), the selling pressure could pick up heading into the latter half of the week. To the downside, the first target to watch will be previous-resistance-turned-support near 135.00, followed by the rising trend line and 50-day EMA near 134.00.

Only a bullish reversal and break above 138.00 resistance would shift the near-term bias back in favor of the bulls at this point.

-- Written by Matt Weller, Global Head of Research

The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Please note that foreign exchange and other leveraged trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved, seeking independent advice if necessary.

The products and services available to you at FOREX.com will depend on your location and on which of its regulated entities holds your account.

FOREX.com is a trading name of GAIN Global Markets Inc. which is authorized and regulated by the Cayman Islands Monetary Authority under the Securities Investment Business Law of the Cayman Islands (as revised) with License number 25033.

FOREX.com may, from time to time, offer payment processing services with respect to card deposits through StoneX Financial Ltd, Moor House First Floor, 120 London Wall, London, EC2Y 5ET.

GAIN Global Markets Inc. has its principal place of business at 30 Independence Blvd, Suite 300 (3rd floor), Warren, NJ 07059, USA., and is a wholly-owned subsidiary of StoneX Group Inc.