Created on February 19, 2025

• During the trading session on Tuesday, we have seen the US dollar attempt to stabilize against the Japanese yen, which has been quite strong over the last couple of days.
• At this point, there are a lot of questions about where we are going next, but I believe that the market is in the process of trying to find the bottom.
• After all, we have been pulling back quite significantly, and despite the fact that the market has fallen, there are a lot of different things at play right now that need to be paid close attention to.

Ultimately, the yields in Japan have been rising, and that has a major influence on the Japanese yen itself. The Bank of Japan is suddenly worried about inflation, and that of course comes into the picture as well. Ultimately though, the interest rate differential is still fairly wide, so while we have seen the Japanese yen appreciate against the US dollar, I suspect this is more of a “repricing” of interest rate differentials than anything else. It’ll be interesting to see on this plays out, but I do think that we are in the midst of trying to find the bottom near the ¥150 level.

Technical Analysis

The technical analysis for this USD/JPY pair suggests that we are getting close to forming some type of potential bottom, but we haven’t seen the bounce to reaffirm this. It’s worth noting that the 200 Day EMA sits just above, and it did offer a significant amount of resistance on the attempted recovery for the Tuesday session. Because of this, I think you’ve got a situation where the market is probably going to continue to go back and forth and try to sort out where to go next. In other words, volatility is probably going to be a feature, not a bug in this trading environment.

If we were to break down below the ¥150 level, that would be an extraordinarily negative sign, but right now I don’t see that happening easily. On the other hand, I think the breaking higher is going to take a little bit of effort, so with that being said, I suspect that short-term range bound trading will eventually be what we settle into.

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