The U.S. dollar continues to see buyers, as we are looking at the interest rate differential playing out in this market. With this, the market has just broken resistance.
USD/JPY
The U.S. dollar has busted through that crucial ¥159 level, an area that's been important for quite some time in this pair, as the interest-rate differential is finally starting to flex its muscles.
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After the CPI release on Tuesday, it left little doubt that inflation is still a problem in the United States and that the Federal Reserve will have to remain at least somewhat hawkish. If that's the case, and of course the Bank of Japan is out there with a pretty anemic interest rate backing its currency, it makes sense that eventually we rise.
The carry trade is starting to flex its muscles again
The carry trade is starting to flex its muscles again, and if we can break above the ¥160.50 level, then we will have broken through the back of an intervention area. That would be a major turn of events.
Quite frankly, you get paid to hold this market to the upside, and that's what I've been doing for a while. So, waking up this morning and seeing this breakout was welcome news indeed. Regardless, you can be patient in an environment where you get paid to be so.
The ¥159 level should, at least in theory, be support now based on market memory. The 50-day EMA is starting to curl higher as we've had two very strong days in a row. We'll have to see if that can continue.
I've got no interest in shorting this market, and even if the Bank of Japan were to intervene, which I don't think they're going to, at least not at the moment, it should only lead to more value hunters out there willing to pick up cheap U.S. dollars. This is a pair that I think has much further to go over the longer term.
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