The US dollar tried to rally on Tuesday but failed miserably against the Japanese yen.
USD/JPY
The US dollar initially rallied on Tuesday to break above the 50-day EMA but then fell rather significantly. At this point in time, the Japanese yen continues to strengthen, and I think part of this might be due to the fact that the elections in Japan probably were front run by the market, and I also believe that the market will eventually bounce and go higher.
The 200-day EMA sitting at the 152.37 level will be supported right along with the 152-yen level. Ultimately, I do think that buying this pair is the right thing to do but we just don’t have the setup yet. A little bit of a bounce that I can buy on the right-hand side of the V is what I’m looking for.
Long-Term Resistance and Policy Outlook
If we do break down below the 152-yen level, then the market could drop to the 148-yen level, kicking off an even deeper correction. Ultimately, this is a market that I think is going to continue to see plenty of people willing to come in and collect that swap at the end of the day.
I recognize that this has been a rough couple of days, but quite frankly, when you look at it, it is not a huge surprise because 158 yen has been important multiple times over the last couple of years. If we can break above there, it is worth noting that it is a major break that goes back to something like 1990.
If we break above there, who knows where we end up, but it is going to be much higher. I believe demographics and the fact that the Bank of Japan is essentially stuck at this point with loose monetary policy—I think that happens. But that is not going to happen easily and therefore you have to be vigilant; you have to be patient.