- The USD/JPY rallied slightly during the trading session on Wednesday as we continue to attempt to build a base against the Japanese yen.
- The Consumer Price Index numbers come out on Thursday, which will have a major influence on what the bond market thinks the Federal Reserve will be doing.
- This in turn will have a major influence on what happens in this market, as the Bank of Japan has implemented yield curve control.
- This of course is in reference to the fact that the Bank of Japan has stated that it is willing to buy “unlimited bonds” to keep the 10-year interest rate down to 50 basis points.
However, they initially started this program with a yield curve control of 25 basis points on that same 10-year interest rate, so they have already given in a little bit. This is part of what caused the absolute evisceration of the Japanese yen last year. At this point, the question is whether the market is going to continue to see interest rates rise, and therefore the Bank of Japan will have to print more currency.
Choppiness Ahead
Above, we have the 200-Day EMA, an indicator that a lot of people pay close attention to. I believe at this point you could probably make an argument that the 50-Day EMA shrinking and falling toward the 200-Day EMA has some people thinking about longer-term selling. If interest rates around the world stay under control, that could give the Japanese a bit of a reprieve in this environment. I think we’ve got a situation where it’s more likely than not going to be a very difficult couple of days. After all, we have the Consumer Price Index coming out on Thursday, if they come in hotter than anticipated we could see this market looking toward the 200-Day EMA above rather quickly.
On the downside, the ¥130 level seems to be the epicenter of major support, so at this point I think we are trying to figure out whether the market has pulled back enough to make the long side attractive again. The next couple of weeks should give us a bit of a sense of clarity, but the next couple of days will probably be more chop than anything else.
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