USD/JPY rally: this song is good - start over

The dollar's recent fall has made many traders doubt its potential, as even such a reliable bastion as the USD/JPY collapsed. But, apparently, the panic was in vain.

The US currency experienced a large-scale sell-off at the beginning of this week. Appetite for the dollar fell due to intensified speculation about a possible slowdown in the pace of rate hikes in the US.

On Tuesday, the market feared that the Federal Reserve might follow in the footsteps of its Australian counterpart, which unexpectedly took a more dovish stance and raised interest rates by just 25 bps.

The latest US economic data also raised the degree of panic. Macro statistics turned out to be weaker than forecasts and significantly increased traders' fears about the recession.

However, pessimistic moods started to reverse. A hawkish decision by the Reserve Bank of New Zealand gave investors hope that the global tightening trend has not yet dried up.

Markets are now expecting the Fed to continue raising rates at its set pace at its November meeting to curb record high inflation more quickly.

Recall that within the framework of the current cycle of monetary policy normalization, the central bank has already raised the indicator by 75 bps three times.

Confidence in the determination of US politicians was reinforced on Wednesday by the release of a fresh batch of US economic data. This time the statistics pleased the dollar bulls.

America's private sector jobs rose by 208,000 in September, higher than economists' estimate of 200,000, according to the ADP report.

The employment index last month also unexpectedly rose to 53 against the previous value of 50.2.

Better-than-expected macro data supported the dollar's gains across the board, including against the yen.

Yesterday, the USD/JPY asset fully compensated for the losses suffered the day before, having soared by more than 100 points during the day. Wednesday's high was 144.85.

Recall that since the beginning of the year, the Fed has already raised interest rates by 300 bps and is going to increase them even more.

At the same time, the BOJ has never raised the figure and intends to keep it at a very low level in the future.

Thanks to the growing interest rate differential between the US and Japan, the USD/JPY pair has jumped more than 20% since January.

Most analysts are inclined to believe that the dollar's upward trend will continue in the long term, and the yen's crisis will continue next year.

So say 85% of analysts polled by Reuters. In their opinion, the greenback will dominate the foreign exchange market for at least another 12 months.

This year, 8 currencies from the Group of 10 have shown double-digit declines against the dollar. Analysts believe that none of them will be able to compensate for their losses for a very long time.

Thus, the euro, which has fallen in price by 12% against the greenback over the year, will be traded at parity for the next six months.

As for the yen, over the next 12 months, it has a chance to recover only a third of its losses. This is about a 7% gain against the dollar.

Currency strategists predict that the yen will jump to the levels of 144, 140 and 135 over the next 3, 6 and 12 months, respectively. And this year, there is still a risk of the yen falling to new lows.

Despite the recent currency intervention and expectations of further intervention in the market by the Japanese authorities, the dollar can still set a new price record against the JPY.

If the Fed shows even more aggressiveness towards interest rates, it can easily push the greenback to the 150 yen mark.

In this case, for the Japanese currency, this year will definitely be the worst in the history of observations.

The 20- and 50-day exponential moving averages at 144.53 and 144.33 are growing, which strengthens the upward trend of the quote.

At the same time, the relative strength index fluctuates in the range of 40.00-60.00, which indicates the forthcoming consolidation of the asset.

The 144.90 level continues to be a critical resistance zone. Taking this mark should open the way to 145.00 and above.

On the other hand, a fall below 144.50 could quickly weaken the dollar and send it closer to the critical support zone currently at 143.70.