Reversal risk looms as dollar tests high against yen

foreign exchange documentary platform- On Wednesday (June 19) in New York City, the dollar/yen reversed in a V-shape after falling to a low of 157.599 in the European market, and was reported at 157.930 during the session, an increase of 0.06%.

Against the backdrop of recent Bank of Japan and FOMC meetings, the dollar remains worryingly close to its peak against the yen.

The more hawkish tone from the Federal Reserve has seen the dollar well supported by the support of the June FOMC meeting. Powell and others revised the Fed's inflation expectations high and lowered their expectations for rate cuts this year from three to one. The impact of this event has left the dollar still well bought, with traders now questioning the possibility of a rate cut in September or the possibility of a delay by the central bank until later in the year. Powell warned that inflation is still too high and the Fed's easing cycle could be delayed.

The Bank of Japan's Outlook

At its last meeting of the month, the Bank of Japan kept interest rates unchanged and kept its bond-buying program unchanged, but noted that it is discussing reducing the size of its bond purchases and will announce details at its July meeting. The current expectation is that the Bank of Japan will begin quantitative tightening in July. Some market participants have also noted that the Bank of Japan may also choose to raise interest rates unexpectedly in order to improve the effectiveness of QT. If that happens, this should be a firm positive for the yen, driving the dollar lower against the yen in the near term. In addition, if we see US inflation starting to cool at a faster pace in the coming months, this should support the easing expectations in September and put pressure on the dollar as well.

technical analysis

USD/JPY daily chart

The recent test of the support level of 156.18 USD/JPY has caused the pair to move higher again and now test the resistance level of 158.28 again. With the bullish momentum study, the exchange rate could still move further up. However, with the intervention risk emerging, there is a clear volatility near the previous high. If it falls below 158.28, 151.81 will be the key support level to watch.