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Continues to Look for Buyers

It is worth noting that the Federal Reserve is light years away from loosening monetary policy, and traders are starting to think that they are done raising rates. 

  • The US dollar has gained a bit of ground against the Japanese yen during Wednesday’s trading session, and the market has surpassed the ¥135 level.
  • The Bank of Japan has kept interest rates low and printed more currency, which does not bode well for the Japanese yen in the long term.
  • As long as the market is being flooded with currency, the Japanese yen is unlikely to gain any strength.

The yen is a popular asset during turbulent times.

Looking at the chart, we can see an ascending triangle pattern that signals the potential for the market to continue its upward trend. If the USD/JPY pair can break above the ¥138 level, it would be the top of the triangle being violated and would open up a much bigger move. At that point, the “measure move” would allow the USD/JPY pair to rise to as high as ¥148 over the longer term. This would be a revisit of the recent high, and while there has been a nice recovery of the Japanese yen, the fundamental situation has not changed.

The CPI number coming out lighter than expected will have a major influence on what happens with the US dollar. All things being equal, this is a market that has had a nice pullback to the 50% Fibonacci region from the massive move last year and is trying to continue its uptrend. Overall, this is a situation that continues to be fluid but seems to favor the upside when it is all said and done.

It is worth noting that the Federal Reserve is light years away from loosening monetary policy, and traders are starting to think that they are done raising rates. The interest rate differential alone will keep the market somewhat levitated if that is the case.

In conclusion, the market is doing a bit of a “carry trade,” and as long as the Bank of Japan sees its monetary policy through, there is no real reason to believe that the Japanese yen will strengthen longer term. The market’s fundamental situation has not changed, and the US dollar is likely to continue its uptrend against the Japanese yen. Traders should keep a close eye on the ascending triangle pattern and the ¥138 level, as a break above it could signal a much bigger move in the market.

Potential signal: Buying at this point to either start a position or to add could be a move based on the uptrend line. The market breaking above 135 should continue to see people buying as well. The stop would be under the 200-Day EMA, near 133.90 underneath.

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