Daily Structure in Complete Bearish Setup; Trend-Following Strategy Recommended

Forex

Central Bank

Summary:

The market has fully priced in the expectation of a 25 basis point rate cut by the Fed in September. Hedge funds have turned net long on the yen for the first time since 2021.

SELL USDJPY

Close Time

CLOSED

146.404

Entry Price

139.400

149.500

155.345 +0.237 +0.15%

76.2

Pips

Profit

139.400

145.642

Exit Price

146.404

Entry Price

149.500

Fundamentals

The USDJPY fell by more than 0.6% on Monday, dropping to a low of 145.18, following dovish remarks from Fed officials.

There are signs that the policy gap between the Fed and the Bank of Japan may widen further, which could bolster the yen. The dovish tone has shifted expectations for the Fed's future monetary policy back on track, while the BoJ maintains a hawkish stance.

Moreover, Japan's July inflation data, to be released on Friday, is crucial, potentially showing a rebound in inflation and supporting the BoJ's potential rate hike given Japan's strong economic rebound.

Key market focus this week includes the latest FOMC minutes and Fed Chair Jerome Powell's speech at the Jackson Hole Economic Symposium. These events should offer clearer signals on the Fed's next steps. The market currently expects a 25 basis point rate cut in September, but renewed speculation about a 50 basis point cut has increased expectations for a more dovish Fed stance, which could further weaken the dollar.

Meanwhile, hedge funds have turned bullish on the yen for the first time since 2021, driven by significant forex market volatility and a surge in popular yen trades.

According to the latest data from the CFTC as of the week ending August 13, leveraged funds now hold 86 contracts worth approximately $7 million betting on yen appreciation. Speculative traders are preparing for yen strength. This marks a sharp shift in sentiment since early July when traders held heavily negative views on the yen.

Speculative traders, who held around 20,000 contracts betting on yen depreciation a week earlier, have been unwinding their short positions since early July, during which time the yen has appreciated by about 9% against the US dollar and outperformed all other G10 currencies.

Daily Structure in Complete Bearish Setup; Trend-Following Strategy Recommended_1

Technical Analysis

The USDJPY pair's break below the 146.06 support level indicates that the rebound from 141.67 has been completed at 149.35, as the pair was previously rejected by the 38.2% Fibonacci retracement level of the 161.94 to 141.67 decline at 149.41.

The daily structure remains fully in bearish alignment, and the downward momentum is still strong. A solid hold below 146.06 could restart the entire downward move from 161.94 to 139.26, based on Fibonacci levels. As long as the resistance at 149.35 holds, the risk remains tilted toward the downside.

Trading Recommendations

Trading Direction: Sell

Entry Price: 146.58

Target Price: 139.40

Stop Loss: 149.50

Valid Until: 2024-09 - 03 23:55:00

Support: 145.54, 145.18, 144.63, 143.50

Resistance: 146.94, 147.58, 148.05, 148.22

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