Potential signal:
- Just added to a longer-term position.
- I have a stop for this piece at 157 and am looking for 160 yen.
The US Dollar has broken higher against the Japanese yen on Thursday, as we continue to see the carry trade play out. At this point, the markets look like they are willing to take on the Bank of Japan.
USD/JPY
The US dollar has rallied against the Japanese yen during the trading session on Thursday, as we are now above what I think is a fairly crucial number in the form of 158 yen. This is a pair that's recently seen some intervention from the Bank of Japan and the American authorities, which is how we ended up just below the 200-day EMA.
Top Regulated Brokers
That being said, the interest rate differential continues to favor the US dollar and will for the foreseeable future. In fact, despite the fact that the Japanese intervened, when you look at Japanese economic numbers, they're horrible, and in this environment, it's going to be very difficult for the Bank of Japan to do much. There are traders out there that think they raise rates again, maybe 1 more time, and even if they did, it wouldn't change much, about 25 basis points of the interest rate differential.
Rate Differentials and Technical Resistance
But there is also the very real possibility that the Federal Reserve may have to raise rates later as well. Numbers have drifted a little bit lower in America, but the latest number, the manufacturing PMI number, was hotter than anticipated. Going back to the situation that we had had previously, we've had a few bumps along the way since COVID, like that where things just turned around suddenly and then bounced right back.
It's very possible that's still the situation we're in. We are breaking above the 200-day EMA, we have found support in an upward trend line, and now we are above the 158 yen level. Yes, intervention is a very real possibility, but I'm still a buyer here. I have been long of this market for months, and pulling back the way we have has offered another opportunity to add to my carry trade position.
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