The US dollar has broken down during the trading session on Thursday, slicing below the bottom of the up-trending channel that I had been following. While this is a very negative turn of events, it is not necessarily marked the end of the overall uptrend. After all, we are hanging around the 50 Day EMA, so it does make a certain amount of sense that there might be some dynamic support just waiting to happen.
If we were to break down below the 50 Day EMA, it’s possible that the market could look to the ¥132.50 level, an area that has been tested more than once. At this point, I think that you are waiting for an opportunity to pick up a bit of value because quite frankly the market seems to be overreacting to anything that the Federal Reserve said. Furthermore, the GDP shrinking in the United States has people thinking that the Fed will not continue to tighten monetary policy, but at this point, it’s worth noting that the market forgets that the Federal Reserve may be in a situation where inflation is too high to ignore.
Unfortunately, the market has a long way to go before changing trends, so even though we’ve had a nice little pullback, I’ll be waiting for signs of an opportunity to get long again. That being said, pay close attention to inflation numbers, because if they do start to drift lower, it could be the end of the run higher. Even if that were the case, you have plenty of opportunities to get involved along the way, so it’s worth taking your time in making sure that the overall trend has changed. Because of this, we have a lot to work through, and I do think that it’s likely that we will see a lot of volatility as a result. The overall uptrend continues going forward, but I think given enough time we will have some type of clarity. In the short term, it may be more or less a situation where you observe and then jump on the first reasonable opportunity that you get. Pay attention to the US dollar against other currencies as well, because it does tend to move in one direction across the board against other currencies.
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