USD Hanging Around the 50-Day EMA

I suspect that by the time we are done with the Wednesday session, we may have a bit more clarity.

• The USD/JPY currency pair continues to hang around the 50-Day EMA as we are going back and forth around the ¥135 level.
• If we can break above the high of the Monday candlestick, then it’s possible that the entire uptrend can continue to go higher.
• We have to wait on the CPI numbers coming out on Wednesday to get a read on what the Federal Reserve may do.

The market breaking above the top of the candlestick for the Monday session suggests that traders are starting to think that the Federal Reserve is going to continue to be extraordinarily tight with monetary policy as they have been trying to tell everyone. However, if the market were to break down below the bottom of the candlestick, then it’s likely that we will go lower to find support underneath. At that point, the ¥132 area should be a significant area of support that a lot of people would be paying close attention to.

Interest Rate Differential Major Factor

Ultimately, this is a market that is going to continue to be very noisy and based upon the interest rate differential between Japan and the United States, as the Bank of Japan has been buying bonds in order to keep the 10-year rate in Japan down to the 0.25% level. When they have to buy more bonds, that’s the same thing as printing more yen. When other interest rates around the world continue to rise, the Bank of Japan will have to put in some work and therefore print more currency.

On the other side, you have the Federal Reserve which is doing everything can to fight inflation and tighten monetary policy. This has set up the perfect storm for this pair, and that’s how we are trading right now. The market should continue to see plenty of momentum to the upside over the longer term though, unless CPI starts to melt down because then it suggests that the Federal Reserve may not have to tighten monetary policy as much as previously thought. In that scenario, the market would fall apart. This is a market that looks like we are trying to figure out where the next move goes, and where the momentum comes from. I suspect that by the time we are done with the Wednesday session, we may have a bit more clarity.

Ready to trade our Forex daily analysis and predictions? Here are the best Forex brokers to choose from.