The US dollar drifted a bit lower on Tuesday, as we have seen a bit of hesitation, which makes sense considering that both central banks have interest rate decisions.
US Dollar / Japanese Yen
The US dollar has been a little softer during the trading session on Tuesday against the Japanese yen, but at this point in time we have both central banks getting ready to make decisions, so it’s not a huge surprise to see that we have pulled back from the crucial 160-yen level. This is a market that has to navigate quite a bit of noise over the next couple of days, and of course a certain amount of structural resistance.
The risk appetite will continue to be a major factor here as the Japanese yen is considered to be a safety currency under normal circumstances, but quite frankly, the US dollar seems to be what everybody is running to overall, despite the fact that the last couple of days have been a little soft for the greenback.
Potential Levels and Long-term Outlook
The 158-yen level underneath should be significant support, and then I think we could see a little bit of a bounce. If we were to turn around and break above the 160-yen level, then you could open up a much bigger move. After all, there is resistance just above that goes back to 1990, and I think a lot of traders will be watching that closely.
This market has just formed a massive W pattern which measures roughly 800 pips, so I don’t see any reason why we won’t go looking at the 168-yen level. Quite frankly, if we break the 1990 resistance level, we could go looking to the 250-yen level based on a measured move of the huge rounding bottom that shows up on 35-year charts.
With this being the case, I am looking at short-term pullbacks as buying opportunities and will continue to monitor this pair quite closely because if and when we finally do break out, this could be a multi-year investment just waiting to happen as the interest rate differential continues to pay.