The US dollar has been very noisy against the Japanese yen on Tuesday as we see the JGB markets show signs of stress.
The US dollar has been very noisy against the Japanese yen during the bulk of the Tuesday trading session, as we continue to see a lot of noisy action. That being said, you should also pay close attention to the fact that the Japanese bond market is showing extreme stress and volatility, so this is going to make the Japanese yen very difficult to get a handle on in the short term.
That being said, longer term, we certainly have a lot of upward pressure at this point with the 158 yen level being a bit of a magnet, and I think the 160 yen level being a bit of a target. Short-term pullbacks would open up the possibility of buying opportunities with the 156 yen level offering support at the 50-day EMA.
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The 50-day EMA, of course, is an indicator that I think a lot of people will continue to look at as a potential trend line. To the upside, I do think that we could eventually go looking to the 162 yen level after we get above 160 yen, but I think that would take a certain amount of momentum.
The Carry Trade Is Still Alive
Keep in mind that the carry trade is still very much alive, and of course, the US dollar does pay you to hold it against the Japanese yen despite the fact that yields are rising in Japan, because that’s a sign of stress.
That will be very volatile, and I think at this point in time, the market is trying to tell Japan you are not going to be able to raise rates too much, and therefore, the Bank of Japan may find itself acquiescing. There is the possibility of intervention, but intervention just gets bought into before it’s all said and done, as we have seen multiple times.
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