US Dollar Continues to Look for Buyers

If the USD/JPY pair crosses the 133 level, this is a market that could go to the 135 level.

The US dollar made a modest rally during Tuesday’s trading session, reaching towards the 50-Day EMA. However, above this level, the 200-Day EMA presents a significant barrier, which is likely to cause hesitation. If the USD/JPY exchange rate can break above the 200-Day EMA, it is more likely that it will move towards the ¥135 level. Nonetheless, this market is prone to volatility and noisy behavior.

Traders should keep in mind that the Bank of Japan is sticking to its yield curve control program, keeping an eye on the 50 basis point level on the 10-year JGB. As long as this correlation continues, it is likely that the Japanese yen will gain and lose along with the interest rates. Rising interest rates would lead to the Bank of Japan printing yen, flooding the market with supply. This happened last year as they printed yen to buy bonds and keep interest rates low.

Conversely, if interest rates around the world continue to fall, this pair will also fall as it puts less pressure on the Japanese yen. It is a safety play as traders look for bonds, driving the rate down, and creating a feedback loop. It is worth noting that this pair is attempting to form a massive bearish flag. If it breaks down below the ¥130 level, it is likely that the market will experience a drastic decline. Alternatively, breaking above the ¥135 level could kick off a continuation pattern after bottoming out. In this situation, the market could reach towards the highs again in the longer term. Nonetheless, this is a market that also sees a lot of exterior noise, and choppiness should end up being the norm going forward. Position sizing will be crucial going forward to protect your trading capital in this environment.

Overall, this market’s movements are dependent on the bond markets, and the majority of the recent moves have been in congruence with the two markets. While the US dollar made a modest rally during Tuesday’s trading session, traders should be aware of the potential barriers posed by the 50-Day EMA and the 200-Day EMA. As always, it is important to keep an eye on the Bank of Japan and global interest rates as they are significant factors in this market’s movements.

• If the USD/JPY pair crosses the 133 level, this is a market that could go to the 135 level.
• However, at this point it is the wrong side of momentum.
• The 130 level underneath being broken is a sign that the market could very well go looking to test the crucial 127.50 level.
• Stops should be 100 pips, with position sizing taking that into account.

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