- The trading session on Thursday saw the US dollar take a modest tumble, suggesting a possible return to the ¥150 level, a zone that has provided solid support on multiple occasions.
- Adding to the intrigue, the 50-Day Exponential Moving Average is rapidly converging towards this region, setting the stage for buyers to enter the fray in search of value.
The Bank of Japan persists in adhering to its ultra-loose monetary policy, while interest rates in the United States have been on a downward trajectory. Nevertheless, the interest rate differential between the two currencies remains substantial, making the greenback an enticing asset for investors to hold onto. As a result, traders continue to gravitate towards the US dollar in the pair, seizing opportunities for value each time the market experiences a pullback as it offers “cheap Dollars.”
Even in the event of a breach below the 50-Day EMA, there appears to be substantial support around the ¥147.80 level. This level previously served as a resistance zone, making it a likely candidate for support due to the phenomenon of "market memory" on the charts. As long as we remain ensconced within an uptrend, shorting this market is all but impossible, and it seems increasingly likely that value hunters will swoop in to bolster the greenback any chance they get.
The Broader Trajectory is Higher
Moreover, should we manage to vault above the ¥152 level on a daily chart, the path would be cleared for a potential move higher to ¥155 or even beyond. The Japanese yen is susceptible to a weakening trend against a multitude of other currencies, not just the US dollar. The current dip in the US dollar's fortunes, precipitated by the day's fluctuations in interest rates, is nothing more than background noise at this point in time. The overarching trend remains toward the upside, and there is no imminent sign of change. The Bank of Japan's monetary policy remains loose, and the Federal Reserve is poised to maintain its conservative stance, even if further rate hikes are not immediately on the horizon.
In the end, the landscape in the pair is marked by persistent buying pressure over the longer-term, drawing traders in search of value and growth. While the market may be have fluctuations, the broader trajectory is undeniably higher, as you continue to get paid at the end of every day for holding this pair long.
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