USD/JPY Forecast: Continues to Fight

• The USD/JPY rallied during the trading session on Monday, as we continue to see the market showing signs of support underneath the ¥130 level.
• Ultimately, this is a market that I think continues to be very noisy, as we are trying to figure out whether or not the bottom is in.
• After all, the ¥127.50 level has offered massive support, and last week the Bank of Japan suggested that the central bank would continue to do everything it could to keep yield returns on the 10-year note under 50 basis points.

At this point, the market is likely to see the need for the Bank of Japan to continue to buy unlimited bones to keep yields down as a sign that the Japanese yen is going to continue to lose ground. I think we are at a major point right now where we have to determine whether or not the yen is going to suffer as a result, or if we are going to continue to see it strengthen. A lot of this is going to come down to whether or not the interest rates around the world rise or fall. If they continue to rise, then the Bank of Japan will be forced to do more quantitative easing. Quite frankly, with the bond markets showing lower levels of yield, that means that the market would probably drop lower, perhaps reaching the ¥127.50 level again.

Short-Term Rally Ahead

On the other hand, if we were to break down below the ¥127 level, then it would be a major breakdown at this point, perhaps opening up the “trapdoor” underneath the market, and could send this market much lower, perhaps down to the ¥115 level over the longer term. Ultimately, this is a situation where we could get a massive move lower, but we would need to see the bond market really start to pick up momentum and yields drop to make that happen globally.

It is worth noting that the 50-Day EMA breaking below the 200-Day EMA above kicks off the so-called “death cross”, but quite frankly a lot of times that happens far too late to be effective. Ultimately, it looks likely that a short-term rally is ahead of us, but if we get momentum, it’s likely that we are much higher.