- The USD/JPY rallied a bit during the trading session on Wednesday to show signs of life again. We are hanging onto a significant trendline and have pierced the top of the last couple of days.
- This is a good sign, although it doesn’t necessarily mean that we are ready to start screaming to the upside again.
- After all, we have a lot of noise over the next couple of days that will determine where we go next.
Keep in mind that Jerome Powell speaks at the Brookings Institute during the late part of Wednesday, and that could have an influence on what happens with the US dollar as people try to figure out what the Federal Reserve is going to do over the longer term. If Chairman Powell is to be believed, it suggested that the Federal Reserve will remain tight with its monetary policy for some time and that we could be entering a completely different monetary regime. That could keep the US dollar bid well against the Japanese yen as the Bank of Japan continues to see the need to participate and yield curve control.
Market Continues Being Very Noisy
On the other hand, if we break down below the lows of the last couple of days, then I think it’s likely that the market is looking toward the 200-Day EMA, which is at basically the ¥135 level. The ¥135 level I believe is going to continue to be important, and it could be at trend-defining levels. Nonetheless, if the Japanese yen is suddenly going to strengthen quite drastically, I would probably prefer to short the British pound against the yen, because the British pound has a whole host of issues. While the US dollar may be softening a bit, the United Kingdom is going into a 2-year recession, that’s quite a different set of circumstances to deal with.
Any rally now will have to contend with the fact that the 50-Day EMA sits at the ¥142.50 level, an area that will remain important going forward. This market continues to be very noisy, but it is still very much on an uptrend. Adding to the fact that the Core PCE number comes out on Thursday, which is the Federal Reserve’s favorite measure of inflation, and the jobs number comes out on Friday, we are about to make a move.
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