- The USD/JPY has broken above the ¥140 level over the last couple of days, and now it looks as if we are finally running into a little bit of exhaustion.
- However, I would not read too much into it because a lot of the “pullback” has more to do with position squaring than anything else.
- It is a three-day weekend in the United States, so most people were happy to take their profit and leave.
On a pullback, there are multiple areas where I would anticipate that this market continues to find buyers, not the least of which would be the one hundred ¥38 level. That’s roughly at the bottom of a bullish flag that had formed on the chart, and it seems as if the market he’s going to eventually try to find its way to fill that measure to move. That would mean the ¥142.50 level at the very least, and with the Bank of Japan willing to engage in unlimited quantitative easing, it’s not a stretch to see that happen. After all, the Federal Reserve is tightening, while the Bank of Japan is loosening. It’s essentially the “perfect trait set up.”
Dollar Expected to Strengthen
The 50 Day EMA is near the ¥135 level, and I think a lot of people probably pay attention to that. It’s not until we break below that level that I would take any pullback seriously, and it would almost have to be accompanied by US dollar selling everywhere. Remember, this is all about the dollar in general when you talk about the Forex markets right now, but the Japanese yen is a special situation. Most central banks around the world are trying to tighten their monetary policy, but Tokyo is the one outlier. Therefore, we have seen such an explosive move higher. In this environment, it does make a certain amount of sense to see a little bit of a pullback, but that pullback could also be very shallow as we have seen multiple times on the way up to this level.
If monetary policy remains the way it is in both Washington and Tokyo, this is a currency pair that will continue to follow the trajectory higher that we have launched into. Granted, these types of markets do tend to have vicious shake outs occasionally, but changing the trend is going to come from the central banks, nothing else.
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