- The US dollar strengthens against the Japanese yen as interest rate differentials continue to favor the United States.
- With Federal Reserve cuts uncertain and the Bank of Japan constrained, the pair appears supported, favoring dip-buying strategies.
The US dollar has rallied against the Japanese yen during the trading session on Friday as traders start to ask questions about whether or not the Federal Reserve is going to start cutting rapidly, or if it is a situation where they do not. And the FOMC statement, once you read into it and read the transcripts of the FOMC press conference, gives a little bit of hesitation to the idea that the Federal Reserve is just simply on autopilot.
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Conversely, on the other side of the Pacific Ocean, we have the Bank of Japan, which is going to be in a situation where it is difficult to cut rates at least drastically. And therefore, the interest rate differential should continue to favor the United States, as it historically has for years, almost an entire career, and in fact probably even longer than that.
Defined Consolidation Range
So, with that being said, it makes a certain amount of sense that the US dollar is somewhat resilient against the yen. And now it looks a lot like a market that is trying to find some type of consolidation area. The consolidation area is an area that is presently defined with 158 yen being the ceiling and 155 yen being the first floor.
Underneath, we have another floor near the 153 yen level. And as long as we stay above there, I think you have a situation where you will be looking to buy dips. That does not mean that it is easy, and it does not mean that it is going to be a slam dunk, but I do recognize that finding value in this pair on dips and taking advantage of cheap US dollars probably remains the way to go forward.
I like the idea of buying dips as we had just seen and taking advantage of the interest rate differential, just simply holding on to the pair and collecting a little bit of profit at the end of every day, and riding the trend as it gains nominal gains, perhaps to the 158 yen level, maybe even higher than that. I have no interest in shorting as things stand right now.
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