Asset Watch
Thursday, December 22, 2022
The policy shift is bullish for the yen because a wider interest rate band could result in fewer QE purchases by the BOJ. As a result, a slower-than-expected increase in the money supply supports a stronger yen and a weaker USD/JPY.
On the other hand, a similar technical development unfolded in November. When the U.S. Consumer Price Index (CPI) came in below expectations, the USD/JPY plunged by nearly 4%. However, the momentum soon shifted, and the USD/JPY recorded a short-term rally.
The large red candle on the right side of the chart shows how the USD/JPY plunged by nearly 4% on Dec. 20. With short covering (of the yen) often the primary driver of abnormal market moves, the setup could produce another relief rally for the currency pair.
Should you position for a reversal, or is the trend your friend?