March 22, 2022 10:04:35
We wrote two weeks ago about the ascending triangle in USD/JPY. The chances of an upside breakout were high with targets towards 118.66 and beyond. Fast forward and Fed Chair Powell’s speech yesterday has propelled the major beyond here and above 120.
The Fed’s increasing hawkishness has put traders on watch for faster and even more interest rate rises. This is helping to support the greenback with a strong bid. Markets see a 90% chance of a 50bp hike at its May meeting and a terminal rate at 2.70%. Bond markets have sold off sharply which means yields have made new cycle highs, with the US 10-year at 2.35%.
The yen has also been hit by the BOJ who doubled down on its existing dovish policy mix last week. This includes measures to cap Japanese government bond yields at 0.25%. This means further upside in global yields transmits especially into JPY weakness. A worsening trade position due to rampant energy costs is also causing additional weakness in the yen.
Breakout on the monthly chart
We can see on the wider timeframe chart that prices have moved sharply to the upside from the bullish continuation pattern. Resistance at 116.35 was easily broken and the five-year high at 118.66 as well.
That long-term top also tallied with wider trendline resistance. Bulls will have eyes on the 2015 peak at 125.85. Near-term resistance is 121.48 and 122.02.
But prices are overbought on all timeframes so some respite in the advance may happen soon. Support is at 119.60 and then strong support at 118.66.
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