The U.S. dollar continues to grind back and forth as we wait for the interest rate decision from Tokyo. At this point, the markets are very neutral, but we have a clear range.
USD/JPY
The U.S. dollar finds itself going back and forth against the Japanese yen during trading on Thursday, which makes sense as we have a Bank of Japan interest rate decision coming up in the next 12 hours or so.
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The market is currently hanging around the confluence of the 50-day and 200-day EMA indicators, which makes a lot of sense as well. We have been sideways for a while in a range between the ¥156.50 level and the ¥159 level.
Whether or not we break out of there remains to be seen
Whether or not we break out of there remains to be seen, but if and when we do, that is probably a valuable clue as to what will happen next. I believe this is a market that is hanging around trying to sort out what the Japanese are going to do because, quite frankly, the market seems pretty convinced that the Federal Reserve is going to raise rates in December, widening the gap between the two currencies as far as interest rates are concerned.
We are even starting to see the Fed funds futures pricing the idea of a March interest rate hike, although it is not quite to 50% yet. If that remains the case, then eventually this is a market that could go higher.
Structurally speaking, I do think the Japanese yen has a lot of problems. Whether or not that plays out now or 2 years from now, that is the part that remains to be seen. If we were to break above the ¥159 level, I think that allows the market to go up another handle to the ¥160 level. After that, you could be talking about a move toward that ¥164 level that the Bank of Japan so aggressively guarded back at the end of July.
Ultimately, I still like buying dips. You still get paid at the end of every day, and the U.S. dollar still remains resilient.
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