The US dollar has seen a lot of back-and-forth action on Monday, and the USD/JPY will have been no different. At this point, the pair continues to show a “buy on the dip” quality.
USD/JPY
The US dollar has been somewhat choppy during the trading session on Monday as interest rates raced higher due to the war in the Middle East, seemingly hitting another snag as far as peace is concerned. After all, US Marines took control of an Iranian tanker over the weekend and that of course has people worried about tensions ratcheting up.
With that being the case, the market is obviously going to be very volatile and we’ve seen the US dollar be very choppy. Although, what’s interesting in this particular pair, we are pairing the US dollar against the Japanese yen, which is typically thought of as a safety currency, but has its own problems right now.
Monetary Policy and Technical Outlook
The first one of course is the fact that the Bank of Japan has no real way to tighten monetary policy significantly, and because of this, the interest rate differential continues to favor the US dollar and probably somewhat always will.
The technical analysis for this pair is very interesting because once you break above the 160.40 level, you could see the US dollar really take off to the upside as it would be a swing high from 1990 being violated.
Short-term pullbacks continue to see the 158 yen level as support. Anything below there and by extension the 50-day EMA could send the market into a deeper correction near the 156 yen level. But at this point in time, I think you just have a market that's waiting around to see what happens next. Ironically, the Japanese yen, which is considered to be a major safety currency, is behaving exactly the opposite at the moment when it comes to trading against the US dollar because of the interest rate markets. Keep an eye on the 10-year yield in both of these countries; it should guide you as to which direction you’re going.