- The Swiss franc has initially fallen against the Japanese yen during the trading session on Friday but then turned around to show signs of life again as we have seen the Japanese yen lose strength against multiple currencies, this one included over the last several weeks.
- All things being equal, this is a market that is a little over exposed, and I do think at this point in time the overextension of this market needs to be worked off.
A little bit of sideways action would make a certain amount of sense here, as would a little bit of a pullback. That being said, it appears that the Bank of Japan is essentially “stuck” in the game of loose monetary policy, and even though the Swiss National Bank has recently cut rates twice, the reality is that it still pays to hold this pair. The interest rates in Switzerland continue to be stronger than they are in Japan, and that of course attracts a lot of inflows with that being the case, I think you have a scenario where traders will be looking to buy each dip that occurs.
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Technical Analysis
The ¥175 level underneath is significantly important from a psychological standpoint, as well as a potential technical one as it previously was a major barrier that could not be overcome. Short-term pullbacks should continue to be jumped into, and this assumes that we could even get down to the ¥175 level. It’s very possible that we will never get there.
I have no interest whatsoever in trying to short this pair, because quite frankly the last thing I want to own or Bolle is the Japanese yen. The interest rate differential will continue to work against the value of the Japanese yen, and as the Bank of Japan has a serious problem on its and due to the fact that the Japanese are so heavily indebted, and raising interest rates could very well end up crashing the economy. In other words, this pair should continue to go higher right along with all of the other yen denominated currency pairs.
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