The market is in the middle of an attempt to truly break much higher, as we are now facing a potential shattering of a resistance barrier that has been held since 1990.
USD/JPY
The US dollar has pulled back just a bit during the trading session on Friday, only to turn around and show signs of strength again. Most of this can be brought down to two particular factors. The first one will be the fact that interest rates in America are rising while they are very weak in Japan.
Keep in mind that the Bank of Japan is in a situation where we don't have the ability to see the Bank of Japan come in and really raise rates. The interest rate differential should stay in favor of the United States for the foreseeable future. This is especially true now that we are starting to see jobs numbers, and this week we've seen unfilled jobs in the United States jump to levels that we haven't seen 2.5 years.
That suggests that inflation isn't going anywhere. Furthermore, we have a war, and that war should drive inflation up as well. Speaking of the war, with the interest rate differential favoring the US dollar against the Japanese yen, you have a situation where the dollar becomes the safe haven currency.
The Bank of Japan just simply cannot raise rates, not the way that everybody had thought for a while. We are in the midst of breaking out of a major W pattern, but I have pounded the table here at Daily Forex over the last couple of weeks at how important this level is.
The 160 Yen Level and the Bank of Japan
We're not far from the 160-yen level where the Bank of Japan intervened verbally last time. But if we get above there, that could send the yen plunging, in other words this pair going higher.
The measured move of the long-term rounding bottom is somewhere near 250 yen. It's that big of a deal. It's an area that back in 1990 started this whole move. With this, we might be on the precipice of some type of generational change. I remain a buyer of dips at this point.
Potential signal: I am a buyer of this pair on dips, but if we get above 160 on a daily close, I am a buyer as well, with a stop loss of 158, and an unknown target, possibly ending up as an investment.