The US dollar has rallied significantly against the Japanese yen during trading on Friday after the Non-Farm Payroll report. While the candlestick is rather impressive, the reality is that we are getting relatively close to a significant resistance that could come back into play and push this pair lower. After all, the Federal Reserve is printing a ton of greenbacks right now, and that works against the value of the currency itself.
The 50 day EMA is currently sitting at roughly ¥106.50 and could offer resistance as it has been important in the past. After that, we need to look at the ¥107.50 level, an area that has been resistant more than once. Ultimately, I like the idea of fading rallies and taking advantage of an overextension on the short-term charts, as this pair has decidedly broken to the downside recently. This does not mean that it is going to break down significantly, and you have to pay attention to the Friday candlestick from last week when we had seen so much in the way of buying pressure.
Having said that, the candlestick was at the end of the month, and that most of the time involves profit-taking. Whether or not that is sustainable is still an open question, as the only will trading we have seen since then has been through the prism of having a jobs number coming out soon. With all that being said I believe that it is only a matter of time before the sellers come back in, and I am more than willing to take advantage of weakness.
In fact, I do not have any interest in buying this pair until we break well above the ¥107.50 level, something that seems to be very unlikely in the short term. I think that the Federal Reserve working against the greenback will continue to be the main driver of this currency pair, as the Forex world continues to pay attention to the US dollar’s weakness over all other fundamentals. Furthermore, the pair might be a bit slow due to the fact that we have a loose central bank in Tokyo as well. Expect choppiness, but I continue to fade short-term rallies as they occur more than anything else. If you are expecting a bigger move, it makes more sense to go against the US dollar with more bullish currencies than the Japanese yen.
