The US dollar is falling again against the Japanese yen during trading on Wednesday, as we continue to see a bit of a pullback in this extraordinarily bullish market. At this point, it looks like we could test the 146 yen level, possibly even the 50-Day EMA, which is sitting just below the ¥145 level. All things being equal, we are still very much in an uptrend, and it should be looked at through that prism. However, the Bank of Japan has been very aggressive about intervening, so perhaps they will finally get the slower grind against its currency that they are hoping for.
Divergence Between Central Banks
There’s almost no way they can change the trend by themselves, especially if the Federal Reserve continues to tighten monetary policy. Speaking of which, the Bank of Canada raised interest rates by only 50 basis points during the session on Wednesday, having some people believing that the Federal Reserve may follow suit. That’s a bit of a stretch, because the Federal Reserve has come flat out and told everybody what they are going to do. However, hope burns eternal and therefore we are seeing a bit of a selloff against the greenback during the day.
Nonetheless, we have a Federal Reserve interest rate announcement next week, and that will almost certainly have the market screaming again. The statement that accompanies that and the press conference on Wednesday will be parsed for hints as to what the Federal Reserve is going to do, but Jerome Powell has been very direct, and I just don’t see that changing anytime soon. There are a lot of people on Wall Street still suggesting that perhaps even if they do raise 75 basis points, that they will slow down after that. It’s amazing how Wall Street can do that, continually fall for the same line of nonsense and make everybody believe that so that they come in and go “risk on”, only to get the rug pulled out from underneath them.
USD/JPY Fundamental Scenario
- The Bank of Japan continues to print unlimited yen, in order to buy unlimited bonds.
- As long as that is going to be the case, the Japanese yen is going to be on its back foot, and it desperately needs the Federal Reserve to come in and save it by stepping away from a tight monetary policy.
- That’s not happening anytime soon.
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