The USD/JPY had a rocky session during trading on Monday, as we initially shot higher, but then gave back quite a bit of the gain. This is a market that I think will continue to be noisy yet bullish, as the trend is very clear. We are a little stretched against the Japanese yen, but the fundamentals still favor the Japanese yen losing ground over the longer term.
When you look at this chart, you can see that the ¥145 level has offered a lot of resistance, which does make a certain amount of sense as it is a large, round, psychologically significant handle, and a place where we had seen selling pressure previously. Because of this, I think it’s a market that you need to look at through the prism of perhaps being a little overbought, and any pullback now will more likely than not offer a buying opportunity. The ¥140 level underneath should be supported, as it had previously been resistance. The 50-Day EMA currently sits right around the ¥136.50 level and is rising like a steady and reliable trendline.
Japanese Yen Likely to Drift Lower
- The Bank of Japan continues to fight interest rates in that country, and therefore they are buying “unlimited bonds.” This is the same thing as printing currency, or better yet, quantitative easing.
- They are the only major central bank in the world right now doing that, and therefore it does make quite a bit of sense that the currency continues to get pummeled.
- When growth really starts to slow down drastically, as soon as inflation starts to drop, other central banks in the world will start to head in the same direction. It is then that the trend changes in the Japanese yen pick up a monster amount of momentum.
Between now and then, and this could be months, the Japanese yen could end up being everybody’s favorite punching bag, just as it had been previously. Regardless, I don’t have any interest in shorting this market anytime soon, and it would literally take the Bank of Japan announcing that they are done buying bonds for me to change my mind. At that point, you could see the Japanese yen strengthened against everything as it has been sold off so drastically.
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