June 23, 2022 03:49 GMT
The yen has extended gains as BBG ran comments from Japanese FinMin FX czar Nakao, who dubbed currency intervention a "possibility."
- Nakao's comments came with a caveat that "coordinated intervention is generally very difficult unless there's a very excessive movement in the market, or a kind of crisis mode."
- The latest leg lower has allowed USD/JPY to sink past yesterday's low to a fresh session trough at Y135.13. It has now clawed back some of these losses and trades at Y135.52, 74 pips lower on the day.
- As USD/JPY pulls back from recent 24-year highs, one can spot a bearish divergence unfolding on the daily chart of price action plotted alongside the RSI. This occurs when price keeps making higher highs, but its RSI fails to follow suit and prints a lower high.
- Watch this space, as the RSI may soon generate a more powerful bearish signal. On the previous swing higher, the indicator moved into overbought territory, but failed to repeat that on a second attempt. If it now dips past the recent fail point (56.2 or blue circle in the chart), a failure swing top will be confirmed.
- Options trades appear to be getting more bullish on the yen as well, with USD/JPY 1-month risk reversal extending this week's losses today.
- Still, it is worth paying close attention to fundamentals. Relative yield dynamics, largely driven by monetary policy matters, have been a key driver of JPY price action in the recent weeks.
Fig. 1: USD/JPY & Its Relative Strength Index (RSI)
Source: MNI - Market News/Bloomberg