The USD/JPY pair continues to be in the headlines, as both central banks will have something to say this week.
USD/JPY
The U.S. dollar continues to rise against the Japanese yen as we see a lot of questions asked about where to go next. This makes sense that we are struggling here because, quite frankly, the Federal Reserve comes out with an interest rate decision on Wednesday and, more importantly, a press conference. The Bank of Japan will be out late Thursday in North America, early Friday in Asia, with an interest rate decision as well.
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This pair will be on the minds of traders even more so than it had been recently, with the overall intervention.
The question at this point in time is not so much whether or not the Federal Reserve will hike; there is roughly a 92% possibility according to the FedWatch tool. The reality is that the short-term structure is turning bullish again, with resistance at ¥156. It is also worth noting that the stochastic oscillator is starting to cross in the oversold condition.
The technical setup, bouncing off ¥153, looks good. The question is, how does the market read both of these central banks? Therefore, it is going to be a very volatile market.
If we can clear the 156.33 level, I think at that point in time momentum will start to pick up to the upside. It does pay you at the end of every session, and if Kevin Warsh sounds more hawkish than dovish during the press conference, that pay differential may really start to be the driver again.
So ultimately, I am looking at this as a potential trade that I can add to a longer existing core position.
A lot will come down to that and, of course, whether or not the Bank of Japan looks like it is actually going to enter a tightening cycle. We are a long way from this being a negative carry for the dollar.
But we'll see. We have a lot to think about over the next couple of days. I'll be watching that area just above ¥156 to see if things are changing. Alternatively, if we were to break down below the ¥152 level, that would be a very bad look.
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