The USDJPY pair has dropped to a key technical level, the 38.2% retracement from its low on July 1 to its recent high. This level is at 146.704, and the session low reached 146.705, coming close to this target. After touching this level, the pair rebounded slightly to 146.886. This increase is near the July 16 low of 146.900, which grew in importance following rumors about Fed Chair Powell.

Technical Analysis

From a technical standpoint, sellers are trying to take control by breaking below the 38.2% retracement at 146.704. If they succeed, we might see further declines toward 145.94, the 50% retracement of the earlier upward movement. Staying above 146.704 indicates that buyers are still influential, but falling below it could suggest a longer downward trend. This test of a key level is backed by recent U.S. data. The Core PCE Price Index, an important inflation measure, dropped to an annual rate of 2.8% in January. This supports the view of potential rate cuts from the Federal Reserve, which could weaken the dollar. The slight rebound shows a current struggle, but overall sentiment is changing. The Bank of Japan’s Governor Ueda recently indicated that conditions for ending negative interest rates are improving, which adds significant strength to the yen. This makes increases in the currency pair seem like selling opportunities.

Market Sentiment And Strategy

For us, a sustained drop below 146.704 is a crucial sign for more aggressive bearish actions. Recent CFTC data reveals a decline in net short positions on the yen, indicating that major speculators are ready for yen strength. This institutional positioning could lead to a sharp drop if the level breaks. If that support fails, we will target 145.94. Historically, Japanese officials have intervened to strengthen their currency around the 150-152 levels, acting as a psychological barrier for the pair. As a result, derivative traders might consider buying put options to benefit from this deeper retracement. The mixed signals from the Federal Reserve’s cautious approach and the Bank of Japan’s strict stance are increasing implied volatility. This situation is favorable for traders using options to manage their risk. A bear put spread would be a smart strategy to aim for lower levels while keeping initial costs limited. Create your live VT Markets account and start trading now.

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