The USD/JPY initially tried to rally during the trading session on Wednesday but pulled back a bit as we approached the ¥138 level. Ultimately, this is the market that I think continues to see a line of noisy behavior, but at the end of the day it’s a situation where this is all going to come down to interest rates, as the interest rate market has been at the forefront of trading decisions.
Keep in mind that the Bank of Japan continues to fight interest rates rising in that country, so a lot of what this comes down to is whether we are going to see rates rise around the world, or if we are not going to. Ultimately, the market is going to reflect what’s going on in the bond market, and as you can see during the day on Wednesday, rates in the United States slipped a bit. This makes the US dollar a little less attractive, and it most certainly makes the Japanese yen more attractive since less currency will be printed.
Pay Attention to Interest Rate Differentials
Looking at this chart, you can see that the 200-Day EMA sits just below, and therefore it’s likely that it will offer a certain amount of interest. If we were to break through that and then break through the lows from a couple of days ago, it’s likely that we will continue to see further downward pressure. Alternatively, if we were to turn around and take out the highs of the day on Wednesday, then it’s likely that we could see this market you’re looking to the 50-Day EMA, possibly even beyond that. Pay close attention to the interest rate markets over the next couple of days, because that will give us a bit of a “heads-up” as to where this pair can go.
While the Japanese 10-year will stay at 0.25%, it’s all about whether or not the 10 years in the United States is seen higher rates, or if it is seeing rates drop a bit. It does not look very likely that we will have an easy path forward, especially as we start to head toward the Federal Reserve meeting next week. Compounding the issue will be the fact that volume is probably going to drop off by the end of next week.
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