The USD/JPY has fallen to kick off the trading session on Tuesday, but found enough support near the ¥136 level to turn around and form a hammer. This is a market that looks as if it is ready to go higher given enough time, but we may have a little bit of work to do in the meantime. After all, we have the Jackson Hole Symposium going on, and central bankers from around the world will be speaking. In other words, there’s a really good chance that there will be a lot of headline noise in the short term.
Breaking down below the bottom of the candlestick would make it technically a “hanging man”, but I don’t necessarily think that would be the end of the world. That will more likely than not send this market looking to the 50 Day EMA, and then perhaps even as low as the ¥132 level. It’s not really until we break down below that level that I would be concerned about the overall trend. This is a market that I think will find plenty of buyers between now and then, especially if interest rates continue to climb, like they have been in bond markets, not only in the US but worldwide.
Remember, the Bank of Japan has to worry about rising interest rates on the whole, because they need to keep the 10 year yield at 0.25% or lower. In other words, they need to print currency in order to buy “unlimited bonds.” With that being the case, it makes sense that the Japanese yen will continue to fall, and as a result every dip should be thought of as a potential buying opportunity.
Noises from Central Bank
- Keep in mind that there is a certain amount of a risk appetite play here, but the Japanese yen, although a safety currency, also has this noise coming from its own central bank.
- The US dollar is the world’s favorite safety currency as well.
- We may see this market go higher regardless of what happens next, unless of course there is some type of drastic change in the attitude of the Bank of Japan, something that they have shown very little interest in doing.
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