The U.S. dollar rallied again during the trading session on Tuesday as it looks like we are going to test the 160-yen level.
The 160-yen level is an area that I think a lot of people will be watching very closely as it is an area that the Bank of Japan seems pretty sensitive to.
The market breaking above there would of course be very bullish, but we also have to keep an eye on that area all the way up to the 160.50-yen level.
This is because not only did the Bank of Japan intervene in that area, but we also have a swing high from 1990 at that area. If we fall from here, it's likely that the 50-day EMA offers a bit of a floor. After that, we have the 158-yen level.
Ultimately, I think this is a market that will continue to be noisy, and that being said, you have to be very cautious, but I also recognize that the interest rate differential favors the United States dollar so much that if we do start to sell off again, most traders will be looking for some type of bounce that they can take advantage of, perhaps buying on the right-hand side of the V.
Top Regulated Brokers
Potential Bank of Japan Intervention and the Path Forward
I have no interest in shorting the USD/JPY market longer term either, at least not until something really changes. And with this being said, I think markets are going to continue to be very noisy, but I think ultimately this is a situation where the market could very well see a lot of noise, and if that noise gets really out of control, then you might see sudden action by the Bank of Japan.
But there's also the argument that perhaps we may see a slow grind higher, which may not trigger the fear that the Japanese once had. After all, they did have to worry about inflation at one point, but it seems like it's cooling off in Japan, so perhaps we will get the free and clear to go higher. But do keep in mind finding value is probably the best way forward.
Want to trade our USD/JPY forex analysis and predictions? Here's a list of forex brokers in Japan to check out.