- The US dollar has screamed higher against the Japanese yen during trading here on Monday, as we continue to see a lot of back and forth, perhaps base building in this market.
- But of course, Donald Trump has announced tariffs on South Korea and Japan starting August 1st of 25%.
- And that has people running towards the dollar and away from Asian currencies.
- This had already started earlier in the day, so there was probably a leak somewhere.
But ultimately, when you look at the price action, none of this should be a surprise because quite frankly, we have seen a lot of back and forth trading between 142 yen and 148 yen.
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Ultimately, I think you have a situation where traders will continue to look at this as somewhat range bound and perhaps try to build a floor in the market as this is an area that previously had been very important also. With all of this, I think you have to look at this through the prism of just more of the same. It's really not until we break above the 148 yen level that I think things change drastically. In that environment, then I believe that the US dollar goes looking to the 150 yen level, followed by 158 long-term.
Remember, you get paid to hang on to this pair via interest rate swap at the end of every day. And I think a lot of traders will be attracted to that in an environment that is uncertain to say the least. Rates have spiked in the U.S. as bonds have sold off. So that swap is only going to end up getting bigger at this point. The Bank of Japan, on the other hand, has its own issues with the bond market in Japan that nobody seems to be willing to bid on occasionally, which is disastrous for a currency. All things being equal, this is a market that is range bound, but I still favor the upside.
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