- The US dollar fell against the yen on Tuesday as markets reacted to talk of rapid Fed cuts, though broader fundamentals remain unchanged.
- Key support zones near ¥155 and ¥153 continue to define a buy-the-dip outlook amid strong rate differentials.
The US dollar has been rather negative against the Japanese yen during trading here on Tuesday as we are trying to break through the 156 yen level. This is a pair that is just reacting to a lot of the nonsense that we had seen during the day, suggesting that the Federal Reserve is totally going to cut as rapidly as possible. That's the noise. Whether or not that's true remains to be seen.
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I don't think anything has changed. And in fact, a weak retail sales report might have the Fed cutting, but it's also going to have the rest of the world suffering. So, I wouldn't read too much into that. Over the longer term, I think this is a situation where we will eventually find plenty of buyers near the 155 yen level and then most certainly at the 153 yen level. The 153 yen level is an area that previously had been resistant and now should offer support with the 50-day EMA racing toward it.
I am Buying Dips
I am buying dips in this market, and I have no interest whatsoever in trying to get too cute here and fight the overall trend. The interest rate differential, even if the Fed does cut by 25 basis points next meeting, still favors the US dollar drastically. The Bank of Japan has no real out when it comes to loosening monetary policy. So, I think we will continue to see this buy on the dip behavior just be the way this pair behaves. That's been the case for months. I don't see that changing overnight. So, I am a buyer. I don't see the bounce yet, but I want to be on the other side of the V once we do rally to take advantage of momentum.
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