The US dollar rallied nicely during the Friday session, despite the fact that the Non-Farm Payroll announcement was weaker than expected.
The US dollar rallied quite significantly during the trading session on Friday to test the crucial 158 yen level. The 158 yen level, of course, is an important area to pay close attention to, and if we can break above there, then I think it truly unleashes the US dollar to go much higher.
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The Japanese yen has been struggling for a while, and with the interest rate differential favoring the US dollar the way it does, I do think we break out eventually. I have been buying dips in this pair for as long as I can remember and building a position. If we can break above the 158 yen level on a daily close, then it opens up the possibility to the 160 yen level.
Long-term Outlook and Interest Rate Differentials
Short-term pullbacks, I think, open up the possibility of value yet again with a floor in this market closer to the 154.50 yen level. The Bank of Japan is currently threatening to raise interest rates, but they just have far too much in the way of debt and plenty of other concerns about blowing up the entire carry trade to truly do so aggressively.
The Federal Reserve is likely to cut rates a couple of times during 2026, but it is a bit slower than anticipated, and of course, it is worth noting that inflation is a little sticky at this point, so pay close attention to that. I still like this pair. I get paid at the end of every day for holding it and have continued to do so for several months. Whether or not we can break above 160 yen remains to be seen because it was an area of intervention quite some time ago, so there might be some market memory there.
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