The US dollar saw a significant rally during Friday's trading session, breaking above the 50-Day EMA. However, the market has since pulled back, and the 200-Day EMA presents a significant resistance level. The direction of the US dollar will be largely determined by the bond market and the behavior of interest rates.
Bond Market and Interest Rates in Focus
Recently, the US has seen a boost in the interest rate markets, indicating that inflation is still a significant concern. If the USD/PY currency pair breaks above the 200-Day EMA, it could potentially lead to a big move to the ¥137.50 level. While traders should expect some noise in the market, we have recently seen what could be a potential hard bottom.
The market formed a double bottom near the ¥127.50 level, which is a 50% Fibonacci retracement level from the entire move last year. The Bank of Japan's quantitative easing policy could significantly impact this market. The bank keeps a maximum amount of interest that the 10-year yield can rise in the country. Recently, the Japanese allowed it to go to 50 basis points, which means that every time interest rates rise globally, the Japanese have to print more yen to buy bonds to keep yields down.
It's important to note that this market is highly manipulated by what's going on in the bond market. Therefore, traders should keep an eye on the 10-year JGB. As rates rise, the Japanese yen loses strength, and vice versa. Additionally, the US dollar finds strength due to stubbornly high interest rates in America, which is likely to continue in the coming weeks and months.
Traders should closely monitor the bond market and interest rate movements to determine the direction of the US dollar. The resistance and support levels should be monitored closely, and traders should be prepared to adjust their strategies based on changing market conditions. Given the ongoing concerns about inflation and the behavior of central banks, it's important to be mindful of potential fluctuations and uncertainties in the market.
It's worth noting that the US dollar's strength is not guaranteed, as it can also be impacted by global events. For example, tensions between the US and China could potentially lead to a devaluation of the US dollar. Additionally, political and economic developments in Europe and the UK could also have an impact.
Potential signal
- If the USD/JPY pair breaks the ¥133.15 level, then it’s likely that the pair will continue to reach towards the ¥135 level, perhaps down to the ¥138 level.
- At this point, the ¥130 level should be a stop loss.
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