USD/JPY Forecast: Begins to Recover

• The USD/JPY rallied a bit during the trading session on Monday, as we continue to bounce from the 200-Day EMA.
• This week is probably going to be very bad for the Japanese yen, mainly because we have a couple of central banks out there meeting this week that are certainly going to be raising interest rates.
• Because of this, the thing is probably only a matter of time before the Japanese yen finds itself on the back foot again. Ultimately, I think the market will have to pay close attention to central bank actions, as there are so many different problems going on at the same time.

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The Bank of Japan is going to have to print a significant number of Japanese yen in order to buy all the bonds necessary to keep the interest rates low in the Japanese bond market, which is something that has to be done due to the massive amount of debt that that country finds itself in. Ultimately, I think this is a market that is finding enough support for the 200-Day EMA to make it interesting, and therefore I think a certain amount of dip buying is about to commence.

Noise Ahead

I think now you’ve got a situation where the market is going to continue to try to find value where it can, and if we can stay above the lows of last week, I think the market is about to turn around. However, if we were to break down below that low then the trend is probably over. I do believe that eventually, we will have to figure out what to do next, and I believe that decision is going to be made over the next week or so.

 After all, we don’t have a whole lot out there to move the markets after the next couple of days, because liquidity will start to disappear. In that environment, you don’t want to get too heavy into the market, so light positions that perhaps are trying to lead your investments next year might be the best way to look at the next week or 2. Because of this, I think you’ve got a situation where the markets continue to be very noisy, but in general, I think you can also look at this through the prism of an opportunity.

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