- During Wednesday's trading session, the US dollar initially retreated slightly but swiftly demonstrated a resurgence against the Japanese yen.
- Notably, the interest rate differential between the two currencies remains exceptionally broad, thereby enhancing the dollar’s allure over the yen.
- Although the trajectory appears to be one of continued ascension, the market might be somewhat overstretched. However, that doesn’t mean you should be thinking about selling.
The ¥145 level above could induce some psychological resistance. However, historically, it hasn't been a hotbed of activity, which lends to the theory of buying every dip persisting. The ¥142.50 level appears to provide support, while the top of the overarching bullish flag garners significant attention, potentially offering a cushion for the market. After all, the swap alone makes holding this pair attractive in this environment.
This bullish flag points to a measured move to reach the ¥148 level, continuing the theme of an upward trajectory. Moreover, an ascending triangle underneath suggests a possible leap to the ¥149 level. Therefore, despite the market stretching, it appears to continue favoring the upside. The Federal Reserve's commitment to a tight monetary policy and the Bank of Japan’s relaxed policy offer value on dips and contribute to the ongoing upward momentum.
Investors Should Remain Vigilant
Interestingly, the Bank of Japan's governor stated overnight that "extreme FX moves will not be tolerated," a sentiment frequently voiced. This statement caused a minor pullback, but the market swiftly bounced back. With these dynamics in play, bearish sentiment seems unjustifiable for this market in the foreseeable future. The positive swap brings additional incentive to hold, making dip buying an attractive proposition moving forward. The trading public has made its desire known at this point, with the move showing what really matters – what people are willing to do.
In the end, the US dollar continues to assert strength against the Japanese yen, underpinned by an interest rate differential that augments the dollar's appeal. With a combination of key levels acting as potential support and the ongoing uptrend suggesting higher levels, the bullish perspective remains the dominant narrative. Despite occasional pullbacks triggered by policy remarks, the market's resilience continues to shine through, advocating for continued optimism. However, investors should remain vigilant, as shifts in fundamental circumstances could alter the market's trajectory. For now, the course seems set for continued bullish pressure.
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