- Ultimately, this is a market that looks like it has somewhere to be, and that somewhere is much higher.
- The Euro initially fell against the Japanese Yen in early trading on Monday, which would make a certain amount of sense considering just how explosive and bullish the candlestick was from Friday.
- Traders would have taken some profit, but ultimately, this is a market that looks like it has somewhere to be, and that somewhere is much higher.
I had suspected that the Euro was going to reach the 185 Yen level sometime in the near future, but I didn’t expect it to happen as quickly as it did. That being said, this is the end of the year, and liquidity could end up being an issue, but that could also cause quite vicious moves in the currency markets as well. It doesn’t mean that it has to be stagnant.
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MARKET LIQUIDITY AND BANK OF JAPAN IMPACT
Don’t be overly surprised if we get fireworks. There have been a few years in the last 20 years that I’ve been doing this and that we’ve seen massive moves, perhaps due to everybody being on the wrong side of a trade or, better yet, everybody being on the right side of the trade and taking their profit. Liquidity does strange things to the market when it’s disappearing, and we may see that here in a bit.
Clearly, there’s only one direction to trade this pair at the moment and probably going forward, and that’s to the upside. Despite the fact that the Bank of Japan has raised rates, the reality is that they are getting punished in the bond market, and Japan does not have the capacity to hold on to high rates for any significant amount of time because, quite frankly, they don’t have the demographics to do it.
They also have far too much debt. So this will continue to be a problem for the Japanese Yen, and I look at each dip as a buying opportunity. In fact, I don’t worry about the trend at all until we break below the 180 Yen level at the very minimum. So on a pullback and a bounce, I want to start buying on the right-hand side of the V, and so far, that seems to be playing out on the short-term chart.
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