The Bank of Japan’s (BoJ) decision to keep the ultra-loose monetary policy unchanged has helped the USDJPY currency pair 1.21% higher during the Friday trading session. The currency pair, also known as the Gopher, is currently trading at a seven-week high as the BoJ’s negative interest rate, at -0.1%, continues to weigh negatively on the Japanese Yen against its major currency partners.
The BoJ’s Governor Kazuo Ueda’s earlier remarks, where he warned that the bank would need to avoid being stagnant in normalizing the monetary policy, increased bets that the bank may consider a policy tweak in June after the BoJ ditched its quarterly outlook report. The bets could offer some glimmer of hope for the Gopher’s bears. Still, the interest rate differential will continue favouring the bulls in the short term, with the Fed expected to continue tightening its monetary policy. The CME Fedwatch Tool reports that the market is pricing in an 85.7% chance of a 25-basis point rate hike in May, slightly lower than the 89.1% a week ago.
Technical
The 4H chart shows that the Gopher is trending higher within an ascending channel as the greenback continues to punish the weakening Yen. With the recent break above a psychological level of 135.130, investor reaction above the recently broken psychological level could determine the direction of the pair in the short term.
Therefore with the recent BoJ interest rate decision weakening the Yen, the bulls could be confident in pushing the price above the 135.935 resistance level and upper trendline of the channel, a level of interest for the bulls. A sustained break above 135.935 would bring the 136.643 resistance level into play.
However, failure to sustain a move above 135.130 would leave the 134.681 and 133.871 support levels in play, with the 50-day moving average acting as a significant barrier to the bears’ rally.
Summary
The interest rate differential continues to be topical for the currency pair, especially now that the BoJ decided against altering its interest rate decision. With the markets firmly expecting the Fed to continue with the monetary policy tightening, a trading opportunity could exist as the bulls push the price higher above 135.935 and the upper trendline of the channel, with the 136.643 resistance firmly in bulls’ sight.
Sources: TradingView, Reuteres, KoyFin.
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