The US dollar tried to rally during the course of the day on Wednesday, reaching towards the ¥135 level, an area that had previously acted as resistance. A break above this level would have indicated strength, but the gains were short-lived, as the pair showed signs of weakness, and fell to 132.50 yen. This area is expected to provide support, and a break below it could lead to a further decline towards the ¥130 level.
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The moves are prompted by concerns about Credit Suisse, as Saudi financiers decided to stop supporting the ailing bank. This raised concerns about contagion in the banking system, which led to an influx of money into the bond markets. The Bank of Japan is currently trying to combat rising interest rates, buying bonds in freshly printed Japanese yen to keep the 10-year interest rate below 50 basis points. If global rates decline, the pressure on the Bank of Japan may ease, which would reduce the need to buy yen and lead to a stronger Japanese currency. This scenario is exactly what the current chart indicates.
The Japanese Yen is likely to get a boost from the growing fear in the market, making it one of the better performing currencies amid the ongoing uncertainty. As market sentiment improves, the pair could turn around. However, traders should be careful in these turbulent times. As the market is expected to be volatile and noisy. In such an environment, it is advisable to maintain relatively small position sizes until the market direction is confirmed. Frankly, this is the kind of situation that can be very dangerous if you are not careful, and protecting your account will be extremely important.
Ultimately, the US dollar fell against the Japanese yen on concerns surrounding Credit Suisse and the potential for contagion in the global banking system. This increased demand for bonds and put pressure on the Bank of Japan to intervene in the market. With fear driving market movements, the Japanese Yen may emerge as one of the strongest currencies. Traders should prepare for volatility and noise in the market. Keeping deal sizes small to make the picture clearer. The main levels to watch are 132.50 yen for support and 135 yen for resistance, and other developments in the global banking sector are likely to affect the path of this pair.
Graph generated by platform TradingView
