- Despite the fact that the Bank of Japan just raised rates and the Federal Reserve cut rates, you could still drive a truck through the interest rate differential between the two.
- The US dollar has pulled back a bit against the Japanese yen during trading on Monday, which is not a huge surprise, as we were threatening the 158 yen level.
- The 158 yen level is a large, round, psychologically significant figure and an area that I think continues to see a lot of noisy behavior.
If we can break above the 158 yen level, then it's likely that the market will eventually break out to the 160 yen level. I do believe that happens given enough time, but the US dollar itself is giving back some of its strength during the day against multiple currencies, so I think this is more or less an indictment on the US dollar during the session than it is saying anything about the Japanese yen.
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The 154.50 yen level is where we had seen quite a bit of support previously, and I think ultimately the fact that the 50-day EMA is approaching that level as well opens up the possibility of it being a short-term floor. We are heading into the holiday week, and therefore, I think it's probably a market that's going to be choppy and sideways more than anything else, but we'll have to wait and see how that plays out.
I do think this is a situation where you are looking for value, and you are taking advantage of it because despite the fact that the Bank of Japan just raised rates and the Federal Reserve cut rates, you could still drive a truck through the interest rate differential between the two, and that spread pays you at the end of every day. This is what I've been taking advantage of since July, and I don't plan on changing that anytime soon. So with that being said, I think this is just a little bit of give back from that massive move on Friday, but I wouldn't read much more into it than that, being the case. I think it's just a little bit of a pullback, a little bit of profit-taking as we are reaching a resistance barrier. I remain bullish.
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