US Dollar Takes Off Against Japanese Yen

This is a market that has been noisy, but reliably positive. 

• The USD/JPY currency pair rallied significantly Friday to break above the ¥135 level.
• A lot of this has come down to the fact that the interest rates in America spiked after the jobs number came up much stronger than anticipated.
• Keep in mind that a lot of questions are being asked about whether or not the Fed is going to have to continue tightening or not, and by the end of the day on Friday it seemed that consensus has shifted from a potential 50 basis points in September to the possibility of 75.

Buyers to Come in On Dips

Looking at this chart, it’s obvious that we have a lot of the interest rate differential pricing, but at the same time, we have the Bank of Japan doing everything it can to keep interest rates down to 0.25% on the 10-year JGB. Because of this, the Bank of Japan continues to have to buy unlimited bonds, which is the same thing as printing unlimited yen. Because of this, the market is quite likely to see buyers coming in on dips, due to the fact that the Japanese are doing everything they can to keep those rates down. On the other side of the equation, you have the Federal Reserve which is in the process of tightening monetary policy. In other words, it sets up a “perfect storm” for a continuation.

Underneath, the ¥132 level is an area where you would expect to see support, just as we had previously. If we break it down through there, then the ¥128 level began significant support going forward, possibly being trend-defining level as well. Ultimately, it’s worth noting that we are breaking above the 50-day EMA as well, as it is an area that a lot of technical traders pay close attention to.

If we can continue going higher, it’s very likely that the markets will find plenty of reason to test the highs again. Quite frankly, this is a market that has been noisy, but reliably positive. The action that we had seen during the session on Friday should continue to add credence to the idea of this pair continuing to climb over the longer term. Breaking above the ¥140 level could be a huge deal going forward, allowing for more of a “buy-and-hold” scenario.

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