Yen short carnival! Takashi Zaomiao detonated a huge shock in the foreign exchange market, and the key to the market outlook depends on this

The yen has become the favourite benchmark for bears this week, as a strong stimulus candidate leads the race for Japan's prime minister. The yen cross has soared across the board, and the dollar's short cover has pushed the dollar up 3.6% against the yen this week. On Thursday (October 9), the dollar did not extend its previous five-day gains against the yen and is now trading around 152.55.

The weakness of the yen is closely related to the campaign promises made by the new prime minister, Sayo Takaichi. However, tough rhetoric during the election campaign is not the same as policy implementation after taking office. Tomoyuki Shimoda, a former governor of the Bank of Japan, warned that even if Takaichi is elected prime minister, the Bank of Japan may still choose to raise interest rates.

Although it is too early to conclude that the yen cross has peaked, lower volatility and overbought signals suggest that bullish momentum may weaken by the end of the week. Whether this leads to a sideways correction or a deep correction depends largely on how markets interpret the monetary policy stance of the high market.

USD/JPY Technical Analysis: Daily Chart

Combined with the intra-day amplitude indicator, the analysis found that while the dollar had risen against the yen for five consecutive days, reaching a nearly eight-month high of 152.99 at one point, its intra-day volatility had continued to narrow for nearly three days. This may not yet constitute a clear peak signal, but it does suggest that bullish momentum is weakening.

Although the K-line on Wednesday shows a longer upper shadow, it has not yet formed a classic reversal pattern such as Shooting Star.

After the recent surge, the USD/JPY paused below the 153.00 mark, and the exchange rate is currently fluctuating around the 152.45-152 high-volume node area. The short-term structure suggests that the exchange rate may first make a slight correction towards the 152.20-152 support area, and then test the 153.00 resistance zone again.

If it effectively breaks through the 153.00 mark, the rising market is expected to continue to the 153.80-154 range; but if it fails to hold the 152.20 support level, it may trigger a deeper correction, falling to 151.70 or the area near the March high of 151.30.

The current important resistance level is at 154.80. However, bulls need to be wary of possible resistance near the 153 and 154 integer levels, and the monthly R1 pivot point 154.52 also constitutes a key resistance level.

(Dollar/yen daily chart, source: Internet)

At 10:15 Beijing time, the dollar traded against the yen at 152.52/53.