The US dollar fell on Wednesday as traders watched rates in America drop rapidly. That being said, this is a pair that could offer a trade here.
USD/JPY
The US dollar fell significantly against the Japanese Yen on Wednesday to test the 200-day EMA, an indicator that a lot of people will be watching very closely. However, it’s worth noting that we have bounced quite significantly from that level. We are well above the 156-yen level, which is a strong sign that people will be watching very closely.
All things being equal, this is a market that I still like to the upside despite the fact that rates have dropped, but let’s be honest here, the rates in the United States are still sky high in comparison to Japan and you still get an opportunity to get paid at the end of every day and I think over the longer term that still remains 1 of the main drivers.
Geopolitical Headlines and Interest Rate Differentials
The sell-off was due to headlines coming out of the Middle East that the United States and America may be closer to peace than thought. That being said, we’ve also seen more than once 1 of these comments or statements only to find out that, of course, it isn’t true. Ultimately, the interest rate differential will continue to be a major problem and overall the Japanese will have to intervene multiple times to get the market to keep from breaking higher.
With the demographics, the longer-term debt issues, and a whole host of other problems, not the least of which would be the fact that the Federal Reserve probably won’t be able to cut rates as aggressively as people had hoped, I do think eventually we break out.
However, these major levels like the 160.50 level take a massive amount of energy to break out. That is a swing high from 1990 and if it gives way, this thing is going to race higher for years. If we break down below the 200-day EMA, that could change things, but we aren't quite there yet.
Potential signal: I am a buyer here, with a stop just below the 200-day EMA. Target is to move to break even at 160 and aim for 245. This is a long-term set up, high risk, high reward.