- The USD/JPY displayed mixed performance during Tuesday's trading session, hovering around the ascending triangle pattern that the market recently broke out of.
- Despite some fluctuations, buyers are eager to enter the market, driving the currency toward the ¥140 level. Furthermore, the ¥137 level below is expected to provide solid support, and a breakdown below this level could lead to a potential decline towards ¥135, an area that holds psychological significance as a key round figure.
- Additionally, the approaching 50-Day EMA (Exponential Moving Average) will likely be a technical support level.
One crucial factor supporting the US dollar's strength is the substantial interest rate differential between the United States and Japan. The Federal Reserve's tight monetary policy maintains this gap, while the Bank of Japan continues to implement quantitative easing measures such as yield curve control. By limiting interest rates on the 10-year note at 50 basis points, the Bank of Japan indirectly prints Japanese yen to purchase these bonds, flooding the market with excess currency and consequently depreciating the yen. Conversely, the Federal Reserve's tight policy stance fuels demand for the US dollar. Given these circumstances, although volatility may persist, the prevailing momentum favors further upward movement. In fact, a "measured move" analysis even suggests the possibility of the US dollar rising as high as ¥148 over time.
Attempt to Buy the Dips
Considering the current market conditions, it seems prudent to adopt a strategy of buying dips rather than attempting to short the US dollar. However, it is important to closely monitor the situation, particularly if the market breaks below the 200-Day EMA. Such a development could introduce a significant bearish sentiment and alter the overall outlook. Nevertheless, the prevailing sentiment suggests that the US dollar is poised to advance over the long term.
Ultimately, the US dollar's performance against the Japanese yen has shown resilience, with the market exhibiting signs of further upward movement. The wide interest rate differential between the US and Japan continues to favor the US dollar, driven by the Federal Reserve's tight policy and the Bank of Japan's quantitative easing measures. While volatility remains a possibility, the overall trajectory points towards a potential increase in value. Traders are advised to take advantage of buying opportunities while remaining cautious about any changes that could alter the current BoJ trajectory.
Potential signal: At this point, it seems to be only a matter of time before the Greenback overwhelms the Yen. A bit of patience is needed, but I am comfortable buying the USD/JPY pair at current levels, especially after the price action of the last few days. A stop loss at 137.60 is prudent, and a target of 142.30 is likely to be the case.
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