USDJPY
USDJPY finished yesterday’s trading higher as the Federal Reserve and the Bank of Japan take additional action in response to the market’s recent moves. The currency pair bounced off its intraday lows at 103.07 to rally to a high of 106.09. By the end of the New York session, it had settled at 104.62. As of this writing, USDJPY is trading at 104.97.
The Federal Reserve Bank of New York announced that it would increase its asset purchases to $1.5 billion. Through repo agreements, it will buy securities and bonds (T-bills) from banks provided that they will be purchased back at a later time with interest. The goal is to provide the markets with short-term liquidity. Last night, the central bank offered $50 billion 3-month repo overnight and will add another $1 trillion on Friday.
This action follows after stocks suffered their worst daily loss since 1987 on the back of coronavirus concerns.
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Meanwhile, in Japan, the BOJ also conducted an unscheduled repo operation of a much lower scale. It offered to buy 500 billion yen of securities. With this, some market participants think that it may only be a matter of time before the central bank directly intervenes in the market. They are expected to buy foreign currencies and sell the yen in an effort to stave off safe haven flows into it.
On the 4-hour time frame, we can see that despite the recent uptick in USDJPY, the downtrend is still intact. By connecting the highs of February 21 and February 26, we can see that the currency pair is testing trend line resistance around 105.80. When drawing the Fibonacci retracement tool from the high of February 26 to the low of March 9, it can also be seen that this price coincides with the 50% Fib level. A shooting star candlestick has already materialized which is often interpreted as a bearish confirmation signal. It could hint that USDJPY may soon trade lower to its March lows at 101.175.
Alternatively, a close above today’s high at 106.09 could mean that there may still be buyers in the market. It would mean that resistance at the trend line has been effectively broken and that the next ceiling could be at 108.30.