The US dollar has jumped against the Japanese yen to start off the week, as traders continue to trade the interest rate moves. At this point, the area just above is a massive barrier.
USD/JPY
The US dollar has gapped higher against the Japanese yen as traders are concerned about the lack of progress in the ceasefire talks in the Middle East. That being said, since then we've seen a few headlines that suggest that the talks are certainly going to continue and that could put a little bit of pressure on this pair as people have been running to the US dollar due to concerns about energy inflation and the whole idea of safety.
The Japanese yen of course is considered to be a safety currency as well, but the interest rate differential is huge in this pair and probably the main driver of where we go next as the Japanese don't have any real shot at tightening for a significant amount of time.
Interest Rate Differentials and Historical Resistance
In this environment, it makes quite a bit of sense that the US dollar would continue to strengthen against the Japanese yen except for the fact that the area that we are sitting just below is a swing high from 1990. If we were to break out above the 160.50 level, that could signal a major problem for the Japanese currency—one that might last for years.
I do like buying dips in this pair because you get paid to hold dollars and I do think eventually we will break out. But right now, it looks like more choppiness is probably in store and therefore you have to be somewhat cautious. I look for a little bit of value and then start buying dollars.