Potential signal:
- I am fine with buying this pair at these levels, with a target of 158 and a stop at 155.
- The US dollar continues to see range-bound behavior against the Japanese yen on Friday.
- The US dollar has rallied just a bit against the Japanese yen in what would have certainly been thin Friday trading.
Half of Europe was celebrating Boxing Day or something similar to it, and the United States, although technically open, has most people away from work and ignoring the markets in general.
The market has done exactly what you would expect in the scenario that we find ourselves in, and it's continued the overall consolidation. The interest rate differential does favor the US dollar, and therefore I think there's nothing wrong with buying it, but I do recognize that there's a very real anti-US dollar sentiment at the moment and that will lead to more volatility.
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The 50-day EMA sits right around the 154.50 level, which is basically the floor in the consolidation that we have been involved in for the entire month of December.
Market Sentiment and Interest Rates
Over the longer term, I would still favor the US dollar over the Japanese yen. That's not really a US dollar call; that's more about the Japanese yen than anything else, as you can see several other currencies around the world working their way higher against the yen as well.
The Bank of Japan did hike rates, but I think traders at this point in time have voiced their opinion of that as the Japanese yen continues to be fairly soft.
It is not until we break down below the 153 yen level that I even begin to have the conversation of maybe the trend could be changing. I'm a buyer of dips. I think we'll get back to 158 yen, and I do think we eventually break above there.
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