The US dollar continues to threaten a major resistance barrier against the Japanese yen, as the markets are watching this area very closely.
A move above could be a massive signal.
The US dollar rallied a bit against the Japanese yen during the early part of the trading session on Tuesday as we are now above the 160-yen level, and now it looks like we are trying to break above the 160.50-yen level. By doing so, the market could really start to break to the upside and clearing that level could open up a huge move to the upside.
This is an area that was a swing high from 1990. If we were to break out, I think you have a situation where the market is likely to continue to look toward the 165-yen level, and the measured move from the consolidation from 1990 actually suggests we could go as high as 224 yen. I don't think that happens, but it is worth something to think about as a potential investment, not just a short-term trade.
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Interest Rate Differentials and Policy Outlook
If we fall from here and break down below the 160-yen level, there is plenty of support underneath near the 159-yen level where the 50-day EMA is hanging around. This is an area that I think remains important.
The interest rate differential continues to favor the US dollar, but keep in mind they are expecting the Bank of Japan to raise interest rates by 25 basis points. Ultimately, I think this is a breakout just waiting to happen despite the fact that the Bank of Japan did intervene previously. Even if they did again, typically interventions only slow down the inevitable; they don't very often reverse them. So, I'm a buyer of dips, and I'm a buyer if we break out.
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