The foreign exchange market has been witnessing some interesting developments lately, particularly in the Japanese yen (JPY) pairs. One pair that has caught the attention of many traders is the USD/JPY, which recently broke out of its narrow trading range.
The USD/JPY pair is currently trading at a multi-month high, indicating a strong bullish sentiment in the market. This breakout has been fueled by a number of factors, including a weaker yen and a stronger US dollar.
One of the main reasons for the breakout is the divergence in monetary policy between the Federal Reserve (Fed) and the Bank of Japan (BoJ). The Fed has been adopting a more hawkish stance, hinting at a possible rate hike in the near future as the US economy continues to recover. On the other hand, the BoJ has been maintaining its ultra-loose monetary policy, which includes negative interest rates and unlimited bond purchases.
This divergence in monetary policy has led to an increase in demand for the US dollar, as investors seek higher yields in the US market. As a result, the USD/JPY pair has gained significant upward momentum, breaking through key resistance levels.
However, while the USD/JPY pair has experienced a bullish breakout, the same cannot be said for another yen pair, the AUD/JPY. This pair has failed to ignite the same level of bullish sentiment, despite the overall weakness of the yen.
The AUD/JPY pair has been facing headwinds due to a number of factors. Firstly, the Australian dollar (AUD) has been under pressure due to concerns over the country’s economic recovery from the COVID-19 pandemic. Australia has been grappling with intermittent lockdowns and a slower-than-expected vaccination rollout, which has dampened investor sentiment.
Secondly, the Australian economy is heavily reliant on China, its largest trading partner. Any slowdown in the Chinese economy or worsening diplomatic tensions between the two countries can weigh on the Australian dollar.
Lastly, the Japanese yen has managed to maintain its strength against the Australian dollar, which has kept the AUD/JPY pair range-bound. The yen has been a safe-haven currency, attracting investors during times of uncertainty. This has limited the upside potential for the AUD/JPY pair.
In conclusion, while the USD/JPY pair has experienced a strong breakout, the AUD/JPY pair lacks the same bullish spark. The USD/JPY breakout can be attributed to the divergence in monetary policy between the Fed and the BoJ, along with a stronger US dollar. On the other hand, the AUD/JPY pair has been hindered by concerns over the Australian economy, its reliance on China, and the strength of the yen. Traders will need to closely monitor these factors to determine the future direction of the AUD/JPY pair.
