In the short term, I suspect that the market is going to continue to bounce around in this 500 point range.
The US dollar has rallied a bit against the Japanese Yen during the trading session on Friday as we continue the recovery from the ¥140 level, which is where we ended up after the massive Bank of Japan intervention on Thursday. The 50-Day EMA sits just below the ¥140 level, and I do think that it is probably only a matter of time before any move to that area could cause a little bit of a bounce, as it offers a certain amount of support as a trendline.
Bank of Japan Intervention
On the other hand, if we were to break above the ¥145 level, then it’s possible that we could see the US dollar really start to take off to the outside, but at this point I would be a bit cautious about the Bank of Japan losing that sense of humor. After all, they just intervened 3 days ago and although central bank intervention typically does not work over the longer term, it does tend to slow down the overall move. Short-term pullback should continue to offer value, and I do not have an interest in shorting this market. Having said that, if the market was to suddenly drop significantly, I would probably start buying the Japanese yen against other currencies, not necessarily the US dollar.
For example, the NZD/JPY currency pair is probably much more susceptible to selling pressure than the USD/JPY. Furthermore, the British pound is more likely than not going to be a scenario that is horrific, because the British pound itself has a lot of issues to begin with. With this being said, I think we have a situation where we are going to continue to see this market grind higher, but if we see trouble over here, those other currency pairs are going to be hammered rather drastically.
- The 50-Day EMA underneath could offer a little bit of support, as long as we do not get some type of shock from the Bank of Japan, or the Federal Reserve.
- The market will continue to be very noisy, but at this point in time you probably need to start looking for value on dips more than anything else.
- In the short term, I suspect that the market is going to continue to bounce around in this 500 point range.