USD/JPY: Major Support v/s Carry Unwind
USD/JPY has continued to drop and the bounces since early-August, when the sell-off really got underway, have grown more and more shallow.
The fundamental side of the pair is in focus this week as the Fed is expected to begin their rate cut cycle. With the FOMC lowering rates the rollover on the long side of the pair can narrow, thereby removing some of the motivation that had previously helped to catapult the pair to 37-year highs.
On the technical side - a major zone of support has just come into play, spanning from 139.28-140.30. The 140.30 level is the 23.6% retracement of the 2021-2023 major move, and this is what caught the lows in late-December of last year. That price held the low last Friday and offered a mild bounce into the weekly close, but sellers weren't satisfied and went down for another fresh low to start this week.
Below that, the 140.00 psychological level remains a key spot and then below that 139.28 marks the 38.2% retracement of the 2021-2024 major move, which I'm denoting as the trend produced by the carry trade.
Given that perspective, there's reasonably more unwind that can be seen just from how elevated the pair remains on a historical basis, and this is what points back to the fundamental side of the pair as that rollover/carry is expected to narrow further and further the more that the Fed cuts.
I think it's the Summary of Economic Projections that will be the driver here as the more dovish that the Fed sounds in their projections, the more motivation there could be for longer-term bulls to unwind positions. - js
The fundamental side of the pair is in focus this week as the Fed is expected to begin their rate cut cycle. With the FOMC lowering rates the rollover on the long side of the pair can narrow, thereby removing some of the motivation that had previously helped to catapult the pair to 37-year highs.
On the technical side - a major zone of support has just come into play, spanning from 139.28-140.30. The 140.30 level is the 23.6% retracement of the 2021-2023 major move, and this is what caught the lows in late-December of last year. That price held the low last Friday and offered a mild bounce into the weekly close, but sellers weren't satisfied and went down for another fresh low to start this week.
Below that, the 140.00 psychological level remains a key spot and then below that 139.28 marks the 38.2% retracement of the 2021-2024 major move, which I'm denoting as the trend produced by the carry trade.
Given that perspective, there's reasonably more unwind that can be seen just from how elevated the pair remains on a historical basis, and this is what points back to the fundamental side of the pair as that rollover/carry is expected to narrow further and further the more that the Fed cuts.
I think it's the Summary of Economic Projections that will be the driver here as the more dovish that the Fed sounds in their projections, the more motivation there could be for longer-term bulls to unwind positions. - js
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