- The US dollar has gone back and forth during the course of the trading session on Tuesday, as the market is hanging around the 150 yen level, the 150 yen level, of course, is an area that has a certain amount of psychology attached to it as it is a large round psychologically significant figure.
- But it's also an area that's been important more than once.
At this point, it certainly looks as if we are asking questions of the downside, but keep in mind that the interest rate differential continues to favor the US dollars. It'll be interesting to see how this plays out. I think you've got a situation here where perhaps traders are looking through the prism of whether or not things can turn in the right direction as far as the interest rate differential is concerned, and we can break above the inverted hammer from Friday. I don't know yet. This is a market that certainly looks like it is trying to find its bottom. But right now, we're just bumping along. And I think the interest rate differential itself isn't enough to get the market moving because everybody is freaking out about the idea of the carry trade unwinding.
On a Break Above the Highs of Friday
That being said, if we could break above the Friday inverted hammer from last week, it opens up a move to the 152 yen level, which is where the 200 day EMA currently resides. If we break down from here, perhaps below the 148 yen level, then it opens up a move down to the 145 yen level rather quickly. That goes against the interest rate swap and of course, you have to pay at the end of every day to do that. So that's why I'm always a little bit leery of doing this, because it does add up over time. A short-term trade works out quite nicely, but if you end up in a trend trade, it gets expensive over the longer term. As things stand right now, the Japanese are likely to be at 0.75% by the end of the year, but the Americans are probably still going to be at 4%, or perhaps even 4.25% which is part of why I'm waiting to see if we can break to the upside.
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