The USD/JPY pair continues to see a lot of sideways action, as the interest rate differential continues to favor the U.S. in this market.
USD/JPY
The U.S. dollar initially fell against the Japanese yen after trying to rally, but we see a little bit of resiliency here at the 50-day EMA. Furthermore, we have the 200-day EMA sitting just below there, both of which I think should offer a little bit of support, but they are basically in the middle of a consolidation range.
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The ¥156.50 level underneath is a significant floor, with the ¥159 level above being a massive barrier. If we can break above the ¥159 level, I think that is a nice buying opportunity and probably pushes this market towards the ¥160.50 level. If we get beyond that, then the U.S. dollar really should start to take off.
I think at this point in time, dips continue to be buying opportunities
Keep in mind that the Bank of Japan is a little hesitant to raise rates, while the Federal Reserve is almost certainly going to do so in December. With that being said, it would bring the interest rate differential back to where it was just a few months ago, which explains the consolidation and sideways work here.
I think at this point in time, dips continue to be buying opportunities, and it is really difficult to imagine a scenario where you would want to short this pair. But if we were to break down below the ¥156 level, then we could see this market drop.
All things being equal, though, I think carry traders are jumping back in here to take advantage of the overnight swap. Quite frankly, I think that is the way to play this market. Eventually, it will have to break. Suspiciously, I find that the market refuses to fall for any significant amount of time, so I do favor the upside, at least for the moment.
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