USDJPY – Potentially More Volatility AheadUSDJPY experienced a significant move higher at the end of April/beginning of May, as first, the Bank of Japan (BoJ) started to indicate caution towards further interest rate hikes due to the uncertainty caused by the introduction of President Trump’s trade tariffs, a potential negative for the JPY. This was followed by dollar demand linked to Monday’s announcement by US and China trade representatives of a significant de-escalation of tariffs on imports from each country for a 90 day period.
This upside squeeze saw USDJPY trade from a low of 139.89 on April 22nd to a high of 148.65 on Monday May 12th, as FX traders were forced to pare back weak short positions as short term upside resistance levels were broken.
Since then, however, the rally has come to an abrupt halt with USDJPY falling to a low of 145.60 on Wednesday, with a potential catalyst for this drop being a news report outlining currency policy discussions between US and South Korean governments at the start of May which may have led to increased speculation that President Trump’s administration may be open to a weaker dollar.
Looking forward, this pick up in USDJPY volatility may not be finished as traders now have to digest 2 scheduled events today and one overnight that may impact where this popular currency finishes the week.
The first 2 events, includes the earnings and forward guidance from the US retail colossus Walmart (due today before the open) and US Retail Sales data (1330 BST today), which will provide FX traders with an important update on the current appetite of US consumers to spend through the recent trade war upheaval.
Then, overnight the Japanese Preliminary Q1 GDP growth update is due at 0050 BST (Friday). This release could either support the current BoJ caution over further rate hikes, or lead to a potential resurgence of market rate hike expectations, if it comes in stronger than anticipated, with knock on implications for USDJPY volatility into the weekend.
Technical Update: Being Prepared For Further Volatility
It has certainly been an impressive rally in USDJPY, with traders perhaps focusing on the recent close above 145.92 as a potential positive. This level was equal to the May 2nd session high, which might be viewed by some, as opening further attempts to extend recent price strength.
However, within financial markets, psychological round numbers in price can influence trader sentiment, meaning as impressive as latest upside may appear, it might still have to close above 150.00, equal to the round price number evident just above recent activity.
What if the 150.00 resistance holds and fresh weakness emerges?
This week’s activity has so far, seen a price high established at 148.65, posted on Monday, which coupled with the 150.00 psychological resistance, may be an area traders could be focusing on as next possible resistance. They may feel, this 148.65/150.00 range could continue to hold price strength, even attract selling pressure.
A pattern for USDJPY activity in 2025, has been attempts at price strength failing under the previous recovery price highs, as indicated by the pattern of lower highs since the January 10th upside extreme, highlighted on the chart below.
It is far too early to say if this is the case again, but the 38.2% Fibonacci retracement of April to May price strength, which stands at 145.31, might prove an important support.
If this 145.31 level were to give way on a closing basis, it could point to a possible phase of more extended declines, and potential weakness towards 144.28, the deeper 50% level, even 143.24, the 61.8% retracement.
What if 145.31 Support Holds?
If the 145.31 support holds current price weakness, it could be argued, the 148.65/150.00 range is a resistance area we should perhaps watch on a closing basis, if it is challenged over coming sessions.
While not a guarantee of a more sustained phase of price strength, if closes above 148.65/150.00 were to materialise, traders might then look for potential to test higher resistance levels.
Focus could for instance then turn towards tests of the next price failure high, which is represented by 151.21, posted on March 28th 2025, possibly further if this in turn gives way.
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