- During the trading session on Friday, we have seen the US dollar drop against the Japanese yen, as we are now sitting at the 200 Day EMA.
- This is a pair that obviously is very noisy under the best of circumstances, and recently we have seen a major amount of volatility.
- Because of this, I think you are a little bit cautious if you are watching this pair, because we have fallen so significantly over the last 2 days, that it’s difficult to get aggressively bullish.
All things being equal, the technical analysis for this USD/JPY pair is one area of indecision, because we are sitting at the crucial 200 Day EMA, which of course has a major influence on longer-term trend traders. We have also bounce from there, which of course is a bullish sign as well, but we will have to wait and see whether or not that actually ends up mattering. If we were to break above the top of the candlestick, then we could go looking to the 50 Day EMA, sitting right around the 154.15 level.
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Bank of Japan
The biggest wildcard in this pair right now is the Bank of Japan, because although the interest rate differential is still wide enough to drive a truck through, the reality is that the Bank of Japan is now starting to complain about inflation in that country, something that is not conducive to the carry trade. Because of this, think you have to look at this through the prism of a market that is trying to figure out whether or not we are going to turn around and follow the longer term uptrend, or if the market is going to finally break down. If we were to drop below the ¥151 level, then I think you got a situation where the trend might change. We are deftly on the precipice of it, but technically we haven’t quite done it yet.
All things being equal, you do get paid to hang on to this pair via overnight swap, and I do think that continues to at least somewhat supported the pair. However, the US dollar has taken a bit of a beating against multiple currencies during the last couple of days, so we’ll have to wait and see if that continues.
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