- The US Dollar has pulled back just a bit during the trading session on Thursday in early hours against the Japanese yen.
- We have tested the ¥149.80 level, an area that previously had been resistant and it does look like the US dollar is at least trying to defend itself in this general vicinity.
- The retail sales number they came out weaker than anticipated earlier in the session of course has had its effect on the pair, as traders are trying to sort out whether or not the Federal Reserve is going to loosen monetary policy later in the year.
The Trend Remains the Same
The overall trend remains the same, despite the fact that we have had such a nasty knee-jerk reaction during the day. Quite frankly, this is a market that is a stretch, so I do welcome short-term pullbacks as potential buying opportunities. The 50-Day EMA sits near the ¥147.33 level and is rising. I suspect that will be the bottom of the overall range and as long as we can stay above that, we should be fine. Even if we were to break down below there, you can make an argument that the 200-Day EMA which sits near the ¥145 level could be an area of significant support also.
Ultimately, this is a market that I think will eventually try to reach the ¥152 level, and perhaps even breakthrough there to go much higher. The interest rate differential continues to favor the US dollar in general, and I do think that it is probably only a matter of time before we see traders jump into this market on every dip, so I welcome this pullback as it is an opportunity to pick a “cheap US dollars.”
The Bank of Japan is nowhere near being able to tighten monetary policy, especially as the debt load in Japan is astronomical. In fact, it’s one of the worst debt loads in the world, so trying to finance at higher rates is something that simply cannot be done. True, the Japanese will occasionally try to jawbone the market into buying the Japanese yen, but the reality is nobody wants to own that currency if they can avoid it. As long as there is a major interest rate differential between these 2 central banks, it will continue to favor the USD/JPY pair going much higher.
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