Potential signal:
- I’d be a buyer of this pair right here, right now.
- I have no problem putting a stop loss at the 147.75 level, with a target of 151 minimum.
- I probably even keep the trade on beyond that, perhaps moving the stop loss to break even at ¥151.
The US dollar has rallied significantly against the Japanese yen during the trading session on Tuesday, as we have broken above a major resistance barrier. Ironically, I have been arguing with people all over the Internet about how this pair could break out, and I think a lot of people believe that it comes down to a handful of squiggly lines as to where things are going to go. At this point, Japan has a massive problem just waiting to happen.
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Bank of Japan
The Bank of Japan has a major problem on its hands, the fact that the Japanese Government Bond market has seen a couple of days where nobody’s willing to buy debt. This is a horrific turn of events for the prospects of the Japanese yen, because quite frankly sooner or later the Bank of Japan is going to have to step in and start buying these bonds. In other words, they will have to do “quantitative easing.” Tuesday added more pressure in this market due to the fact that inflation is not running hot, at least not in the United States, and therefore the Federal Reserve is likely to keep its rates where they are for the rest of the summer. If that’s the case, the US dollar is about to make a big move.
Over the last couple of months, traders have been banking on the Federal Reserve, cutting rates rapidly as the economy crumbles. This was the first CPI reading that show the effect of tariffs, and ironically, it came in less inflationary than anticipated. In other words, a lot of the eggheads at major financial firms and universities are about to get a potential lesson in how the real economy works. This is something that we have seen multiple times from the Federal Reserve, and they will almost certainly fumble the ball sooner or later, but as things stand right now, it’s very likely that this market will eventually break to much higher levels.
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