Yen Recovers as Tensions Ease; Volatility Expected Ahead of Fed and BoJ Decisions
The Japanese yen recouped some losses against the US dollar on Monday as tensions between the US and Iran eased, pushing USD/JPY away from its record high near 164.00.
The pair settled around 163.67, still supported by a rising trendline from early-July lows. However, momentum indicators softened, with the RSI (14) drifting towards neutral near 59 and the MACD line slipping below its Signal line.
A confluence of factors contributed to the yen's recovery, including a fall in energy prices that eased pressure on Japanese policymakers and tempered USD/JPY momentum. The broader uptrend remains intact, but markets remain cautious ahead of policy decisions from both the Federal Reserve and the Bank of Japan later this week.
The approach of these critical interest rate decisions is expected to bring heightened volatility to the USD/JPY pair, making short-term option strategies attractive. Historically, implied volatility has surged when USD/JPY approaches extreme multi-decade highs, as seen in previous joint Fed-BoJ decision weeks.