Potential signal:
- I am buying this pair on a daily close above 143, with a stop at 141.90 and a target of 148.
- This is a potential swing trade.
You can see that the US dollar has fallen pretty significantly during the trading session as we continue to see a lot of concerns out there about the global economy. The Japanese yen is considered to be a safety currency.
So, with that being said, I think you need to be somewhat cautious here because the 140 yen level could be an area where buyers step in to take advantage of cheap dollars. While I know that we are starting to hear a lot of reports about how the US dollar is going to lose its world reserve currency status, the reality is that things have shifted so far in one direction that it's only a matter of time before everybody gets their face ripped off in these markets. So, with that being said, you have to be very cautious. Certainly, chasing all the way down here is not the way to go. Now, if we get some type of sustained close below the 140 yen level, you could make an argument for a massive drop, maybe down to 128.
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I'm not banking on that because of the interest rate differential because sooner or later, the bond sell off does make that U S dollar much more attractive than the Japanese yen. Furthermore, we're getting close to capitulation and anybody who has studied the psychology of the markets at all understands that there comes a point in time where things lean so far in one direction that the snapback ends up being brutal. Furthermore, the Bank of Japan is very unlikely to continue trying to tighten its monetary policy in this environment. Now that the repatriation of capital has occurred around the world, there will be a point where traders start to pile back into the dollar. This is a very interesting area to perhaps start thinking about, but I would be very cautious about doing it quite yet. You would need to see the 143 yen level taken out to the upside rather stringently to gain any real confidence, but I certainly don't want to chase the trade to the downside.
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