The US dollar rallied again against the Japanese yen to reach the ¥119 level. By doing so, the market looks as if it is ready to go towards ¥120 level, but we are getting a bit stretched at this point. I feel like every time I do an analysis of this pair either here or elsewhere, it is the same story: eventually will get a pullback that we can start buying. Ultimately, we will have to pull back in order to acknowledge gravity, but right now it is difficult to imagine that we are able to simply buy up at these high levels.
The ¥118 level underneath could offer a bit of support, and I think that the markets will probably pay attention to it if we drop down to that area, but I would fully anticipate that we could break down through there. If we do, then the ¥116 level becomes the next major support level. That also will be backed up by the 50-day EMA, which is a major technical indicator. It is rising, which suggests that we are going to go higher over the longer term. That being said, eventually, gravity has to be acknowledged.
The interest rate differential between the two economies continues to favor the US dollar, so I think that will continue to be one of the main drivers in what happens next. Nonetheless, we do need to see a certain amount of the market offer value, and at this point in time, it simply does not. Because of this, I prefer buying dips, but will not be bothered to short this market because of the massive move higher and all of the momentum.
In fact, I am not interested in shorting this market until we break down below the ¥115 level, something that I just do not see happening anytime soon. Ultimately, this is a market that looks as if it is going to go racing towards the ¥120 level given enough time. The US dollar continues to power higher against the yen, just like every other currency in the world, and at this point in time, it is one of the easiest trades out there. However, if you are not already long of this pair, you have no business getting involved.
