The US dollar rallied a bit on Wednesday before giving back the upper range of gains for the day. The candlestick is a bit of a shooting star, so if we were to break down below the bottom of it, it is very likely that we could go reaching towards the ¥120 level. The ¥120 level has a certain amount of psychology attached to it, and I think buyers would probably come back into this market somewhere around there.
Breaking below the ¥120 level offers even more value because this market was so bullish that a significant selloff could be coming. We could drop all the way down to the ¥116.50 region and still see the market in an uptrend. The pair has gotten so far ahead of itself that I would be concerned about buying up in this region, so I have no interest in going long at this point. This is not to say that we should be shorting this market, just that we have gotten to the point where chasing the trade would be a fool’s errand.
Keep in mind that the interest rate differential continues to favor the US dollar, as rates continue to spike in the 10-year note. The Japanese 10-year note has very little in the way of interest, due to the fact that the JGB market is heavily manipulated by the Japanese central bank, so, therefore, it is very likely that we will continue to see upward pressure over the longer term, but that does not necessarily mean that the market will go straight up in the air as we have seen as of late.
Having said all of that, if we did somehow turn around and break below the ¥115 level, the uptrend would be over. At that point, we would probably see a rather significant fall off. We are a long way from there obviously, so that is not even a thought at this point. The market pulling back is to be expected, and it should be thought of as an opportunity going forward. The market has been out of control for a while, so is very likely that we are going to have an opportunity on some type of significant selloff.
