- During the Thursday trading session, the US dollar showed a remarkable run higher, surpassing the ¥150 level. This level holds considerable weight, being a large, round, and psychologically significant figure that has previously posed resistance.
- Now that it's been breached, the market is buzzing with speculation about whether this upward momentum can be sustained.
- I am inclined to believe that the ¥152 level is within reach, albeit acknowledging that maintaining this upward trajectory over the long term could be challenging.
Our attention must now pivot to the ¥150 level, as it is expected to transform into a support zone due to "market memory." The market’s ability to stay above this level is pivotal, as it will determine the potential for climbing towards ¥152. A successful breach of ¥152 could pave the way for an ascent to the ¥155 level and possibly higher. In fact, sooner or later we need a resolution to the determination on whether the interest rates will continue to move this market.
Interest Rate Differential Favors the USD
In a broader sense, this market seems to be under the influence of the interest rate differential, which currently favors the US dollar. The market effectively rewards those who hold onto this currency pair, prompting a strategy that seeks value in dips. The US dollar stands as the preferred currency of the two – and others as well, despite recent attempts by the Bank of Japan to talk down this currency pair. The reality remains that the Bank of Japan has also been actively intervening in the bond markets to suppress yields. In the grand scheme of things, the Bank of Japan is at a crossroads: they must decide between allowing higher interest rates (and thus a stronger currency) or continuing their battle against interest rates, which would likely result in further weakening of the yen.
Analyzing the chart, it’s clear that we are navigating an uptrend, necessitating a “buy on the dips” attitude overall. The 50-Day Exponential Moving Average is positioned around the ¥147.80 level, acting as a “rising floor” that lends support to the market. All signs point towards sustained external pressure and a continued upward trajectory. However, it is important to underscore that while the path forward points upwards, navigating this market will not be without its challenges and complexities.
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