- The US dollar rallied during the Friday session to show signs of life again against the Japanese yen.
- The longer-term uptrend has been very strong, so it does make quite a bit of sense that we would see this area offer buyers given enough time.
- Overall, the USD/JPY currency pair will continue to pay close attention to the ¥132 level as potential support, but it’s also worth noting that we have been noisy over the last week or so.
When you look at this chart, you can see that we have shown a bit of a pullback as of late, but we had been a little overdone, and that’s part of a normal market. With the Bank of Japan continuing to print unlimited yen, via buying unlimited bonds, that does put a certain amount of downward pressure on the Japanese currency. However, if interest rates around the world are going to continue to fall, that releases some of that pressure on the Japanese, and thereby makes the Japanese yen strengthen.
Watch the Bond Markets
In other words, you need to pay close attention to the bond markets worldwide to get an idea as to how the Japanese yen may perform. If yields are dropping around the world, then it’s possible that we could see the Japanese yen strengthen. However, if we see a spike in rates, then it’s likely that the Japanese yen gets sold off quite drastically. In that scenario, we will probably look towards the 50-day EMA, which is just below the ¥136 level. If we can break above there, then it’s likely that the market then would perhaps try to make a move to the ¥140 level.
It’s almost impossible to trade this market without paying close attention to the 10-year yields worldwide, so I would have the chart open for the United States, Japan, Germany, and the United Kingdom. If yields around the world start rising, that’s an excellent buying opportunity in this market, and of course vice versa as we have seen this correlation play out for a while. I don’t think that will change any time soon, so as long as you keep an eye on all of these markets combined, it should give you a clear roadmap as to where we go next. Expect volatility, but expect that correlation.
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