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  • International authorities took action to limit the spread of a simmering banking crisis.
  • There were negotiations between Swiss authorities and UBS to purchase Credit Suisse.
  • Fed rates are expected to peak in May at roughly 4.79%.

Monday saw a shift in the USD/JPY outlook as investors flocked to safe assets after UBS’ attempted buyout of rival Credit Suisse at a discount failed to calm the market.

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The yen, which has long been regarded as a secure currency to keep in uncertain times, rose as a decline in Asian bank equities over the previous night spread to Europe on Monday.

The Fed, the ECB, the BOE, the Bank of Canada, the Swiss National Bank, and the Bank of Japan launched a joint initiative to increase market liquidity over the weekend. It came after negotiations between Swiss authorities and UBS to purchase Credit Suisse at a significant discount and with significant debt write-downs.

The banking crisis is the immediate focus of the currency markets, but a Fed rate-setting meeting on Wednesday looms large. Traders believe a quarter-point increase is likely, even though the global banking industry is still vulnerable to contagion concerns.

Nevertheless, according to money markets, rates are expected to peak in May at roughly 4.79%, followed by 72 basis points of cuts until the end of the year.

On Monday, Japan’s top government spokesperson said that the financial system was stable to reassure markets that issues in the US and European banking sectors won’t hurt Japan.

Hirokazu Matsuno, the head of the cabinet, also applauded the top central banks’ decision on Sunday to ensure that lenders have enough money to function. 

USD/JPY key events 

There won’t be any important news releases from the US or Japan today, so investors will keep paying attention to the global banking system.

USD/JPY technical outlook: Bullish divergence points to new lows

USD/JPY technical outlook

The 4-hour chart shows USD/JPY in a downtrend, with the price trading below the 30-SMA, making lower lows and lower highs. The RSI is trading below 50, supporting bearish momentum.

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The price has broken below the 131.50 support and is currently retesting the level. However, the RSI shows weakness in the new low as it has made a bullish divergence. If this divergence plays out, we might see a deep pullback to retest the 30-SMA.

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