USD/JPY Swings Wildly Amid Trump Policy Speculation and Yen Strength
USD/JPY traded with significant volatility on Wednesday, moving between a low of 154.90 and a high of 156.24 on EBS as markets reacted to conflicting signals from President-elect Trump’s trade policies. An initial dip occurred on expectations of a more conciliatory trade tone, but the pair surged after Trump tweeted plans for 25% tariffs on Mexico and Canada, effective February 1. However, the rally faded as longs adjusted positions, and USD/JPY settled near 154.78 late in the session. Massive option expiries above today’s range likely amplified the swings, with $2.6 billion between 155.95-156.05 and another $1.3 billion between 156.45-156.50.
Technical Analysis
Technically, USD/JPY faces resistance and downside risks. The descending 100-hour moving average at 156.08 caps immediate gains, while strong support lies at the 154.78 level, reinforced by the ascending 55-day moving average. Further downside support is at 154.45, the December 19 low. A break below these levels could open the door for a deeper correction, while a move above 156.08 would signal renewed bullish momentum, targeting the 156.24 session high and beyond.
Market Outlook
Broader yen crosses also saw selling pressure, with EUR/JPY dropping into its daily Ichimoku cloud and GBP/JPY and AUD/JPY retreating from recent resistance levels. Market participants are also eyeing rate differentials, with JGB-U.S. Treasury spreads narrowing from recent highs. Attention now turns to the Bank of Japan’s Friday policy meeting, where expectations for a rate hike are building. Any hawkish surprises could further support the yen and limit USD/JPY upside.