The Japanese Yen: The Hidden Safe Haven

The Japanese Yen acted like the safest major currency today after trading at the best level in two weeks amid a heavy U.S. Dollar sell-off. However, the aggressive Fed rate hike bets continued acting as a tailwind for the greenback and might find it as support.

Several factors helped the Samurai currency for the second consecutive day and dragged spot prices further away from over a two-decade low touched earlier this week. The predominant risk-off situation in the market boosted demand for the safe Yen. This, along with a further pullback in the U.S. Treasury bond yields, further inspired bearish traders and exerted downward pressure on the USDJPY pair.

However, the underlying bullish sentiment surrounding the Greenback could lend support to the USDJPY pair and curb the ongoing corrective slide. The headline and core U.S. CPI were strong enough to reinforce market bets for a more aggressive policy tightening by the Fed. In fact, money market futures are now pricing in an 81% chance of a 75 basis points rate hike in June. This should continue to fuel the U.S. Dollar amid a big divergence in the Fed and BoJ policy outlooks.

Long-Term Outlook

USDJPY Daily chart from MT4 12 May 2022. The Yen acted like the safest major currency

The USDJPY pair broke out of the upward channel into a corrective trend, it closed two candles out of the channel indicating a high possibility to touch the support of 127.

Furthermore, Fibonacci retracement is also showing a reading that the pair retreated from a strong resistance towards the 23.6 level at 127. Also, Fibonacci numbers show indicate that 127 is a critical level for the pair, as breaking it might increase the chances of a dive towards 124 or 123.

Technical indicators signal a continuation of the decline but there is no solid support appears in the calculations for the current data. However, the 20 periods moving average remains alongside the last candle signaling a possibility of forming support within the current levels.

Daily chart supports and resistance

Support	Resistance
127.00	130.50
124.00	131.40
121.00	134.00

Intra-day outlook

USDJPY hourly chart from MT4 12 May 2022. The Yen acted like the safest major currency.

On the hourly chart, the pair is free diving breaking both supports at 130 and 128.90. Like the readings on the Daily chart, the pair is not showing any sign of slowing or bouncing before 127.10.

The 20 period moving average is signaling further decline, while the RSI is below 30 and showing the pair as oversold but still not ready to change direction. Both RSI and MACD agree about one thing, the pair is free-falling without a solid sign of support prior to 127.10.