The USDJPY is moving downward and is nearly at the bottom of an important swing area, which ranges from 146.55 to 146.83. This area has seen multiple swing lows since early August, making it a key support zone for traders. If the rate falls below 146.55, it may drop to last week’s low around 146.30, followed by the August low of 146.206. Below these levels, the 100-day moving average sits at 146.14, emphasizing the importance of this support area. Staying above this range would keep buyers active, while a strong break could give sellers the advantage.

Possible Outcomes from the Support Test

We are closely watching the USDJPY as it tests the vital 146.55 support level. This comes after the US reported that core inflation for August 2025 dropped to 2.9%, just below expectations, which is putting some pressure on the dollar. A break of this level may indicate a bigger movement, especially as the Federal Reserve considers economic data closely. For traders expecting a drop below 146.55, buying USDJPY put options with strike prices around 146.30 or even 146.00 would be a straightforward way to play the potential decline. Using put spreads, such as buying a 146.50 put and selling a 145.50 put, can help limit risk and lower initial costs. This strategy allows targeting the technical levels mentioned, including the 100-day moving average. We recall the significant currency volatility in 2022 and 2023, prompted by differing central bank policies that led to sharp trends. If this support level breaks decisively, it could swiftly unravel long dollar positions, akin to the rapid pullbacks seen in late 2023. Derivatives are effective tools for capturing such quick changes.

Strategies for Trading the USDJPY Support

On the other hand, if we think the support zone between 146.55 and 146.83 will hold, selling out-of-the-money put spreads with a short strike below 146.00 may be a smart move. This strategy collects a premium and will be profitable if the pair stays above the support zone until the options expire. The defined risk of a spread is wise given the current uncertain economic conditions. It’s also crucial to keep an eye on the options market’s implied volatility, which is currently at a moderate 8.2% for 1-month contracts. A clear break of support would likely increase volatility, boosting the value of long option positions. We should remain alert to any comments from Japanese officials, as they often speak up if the yen appreciates too quickly. In the coming weeks, the immediate response to the 146.55 level is crucial. We can use short-term options to prepare for either a sharp drop or a strong rebound from this key area. The outcome of the next Bank of Japan meeting will be significant, as any changes in their forward guidance could quickly drive the next major movement in the currency pair. Create your live VT Markets account and start trading now.

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