- The USD/JPY rallied a bit during the session on Wednesday to break above the ¥134 level.
- This market now looks as if it’s going to threaten the 200-Day EMA, which sits at the ¥135 level, and of course, is a major indicator.
- However, you must keep in mind that we are during the holiday trading season, so liquidity would be a bit of an issue. It’s also worth noting that the US dollar is strengthening against most currencies again.
At the ¥137.50 level, we see a major resistance barrier this going to be difficult to take out. If we do take out that level, and subsequently the 50-Day EMA, this pair will more likely than not reach the highs again. This is because the Bank of Japan has decided to fight interest rates, but this time backing off to the 50-basis points level. We have already threatened to break above there, so the Japanese will continue to print currency to defend that. If that were to happen, then the Japanese yen will fall against almost everything as we have seen previously.
Pay Attention to the 10-year Yield in Japan
The Bank of Japan is in an untenable position because they can’t let interest rates rise too much, because there is a massive debt bubble in that country that cannot be paid back anytime soon. However, inflation is going to be a major problem as well, especially with a currency that loses 15% in the year. In other words, there’s no good solution.
The next couple of days will probably be a bounce around the 200-Day EMA, so I’m not looking for much right now but at this point, I think the next six months will probably be determined at the ¥137.50 level, or the 130 unlevel really start to break down. Once we break out of that range, this market is likely to grind in one direction for a bit of a career-moving type of situation. I do favor the US dollar in general but keeping it by this pair is a little bit different due to the bond market games that the Bank of Japan is forced to play. Pay close attention to the 10-year yield in Japan, because if they continue to defend the 50-basis point level, it’s only a matter of time before this pair takes off to the upside.
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