The US dollar has rallied quite significantly on Friday, as traders continue to watch the overall interest rate markets.
USD/JPY
The US dollar has rallied quite significantly against the Japanese yen during trading on Friday, using the 158-yen level as a bit of a floor. Currently we are looking at the 160-yen level as a barrier, but I think that barrier extends to the 160.4-yen level, which is a multi-year high going all the way back to the year 1990.
If we were to clear that level, it would be a very strong sign for the US dollar indeed. There are a multitude of fundamental reasons why I think this happens, not the least of which would be the fact that interest rates continue to rise in the United States, and if that ends up being the case, then it makes sense that we break out.
Not only do you see appreciation in the dollar along the way, but we could see the carry trade come back into vogue for quite some time. I expect it to be very noisy in this general vicinity, but I have been analyzing this pair daily for about 3 weeks now because if this resolves to the upside, it will be something that makes careers before it's all said and done, assuming there are no major changes.
Long-Term Technical Targets and Historical Context
Quite frankly when you look at the huge, rounded bottom from 1990, the measured move is 250 yen. That sounds outrageous, but it wasn't that long ago when 160 yen would have been seemingly unimaginable. After all, it was just 6 years ago we were at 100 yen.
I'm not calling for some type of evisceration of the Japanese yen, but what I am saying is that it probably weakens over time. As far as selling is concerned, I don't really see a situation where I do it, at least not in the short term.
I would say that if we break down below 156 yen, that would be a negative turn of events. It probably has the US dollar weakening against almost everything else, but I think the Japanese yen is in serious trouble, and it's not just the US dollar. You take a look at the New Zealand dollar, the Australian dollar, the British pound, the Euro, the Canadian dollar and so on, and they are all telling you the same story. The Japanese yen is in serious trouble.