The US dollar continues to see a lot of noise near the 200 Day EMA, as we are trying to rally and turn things around.
USD/JPY
Another day, another push back and forth session with the US Dollar against the Japanese Yen. I think the core PCE inflation numbers later in the week could be what people are waiting on, but it certainly looks as if the selling pressure is abating. After all, take a look at the Monday candlestick and then look at the follow-through on the Tuesday candlestick.
First of all, the US Dollar is shorted by so many people it has reached highs in short volume that have not been seen in something like 14.5 years. So that of course suggests that maybe we are overdone. We also have to keep in mind that the Bank of Japan is pretending like they are going to normalize rates, but it will absolutely disembowel the Japanese economy if they have to pay higher rates on what is one of the world’s worst debt-to-GDP ratios.
A Longer-Term Perspective
The demographics in Japan simply do not hold up to the idea of much higher rates. So, I think the market has reacted a couple of times with the idea of perhaps things changing, only to realize that they have not. When you look at a longer-term chart of the Japanese Yen, 160 Yen or right around that area is a major peak high going all the way to 1990. After that, you have 1986.
If we can blow through the 162 Yen level, we could see the Japanese Yen just get hammered. I think the Bank of Japan is doing what they can to keep that from happening. I also think they will lose. I am a buyer of dips. I believe in the carry trade in this scenario and eventually, someday, maybe later this year, especially if the Fed does not cut as much as people want them to, you are going to see the Japanese Yen get hurt.
Potential signal: I am a buyer on a daily close of this pair above 153.50, with a stop at 152.50, and a target of 156.50 above.
Want to trade our USD/JPY forex analysis and predictions? Here's a list of forex brokers in Japan to check out.