- The US dollar has fallen initially against the Japanese yen during the trading session on Thursday as we have pierced the 50-day EMA but have also turned around the show signs of life.
- The 50-day EMA of course is an indicator that a lot of people will be paying close attention to it as it is an indicator that a lot of people watch the 147 yen level underneath is support while the 148 yen level above is a bit of resistance.
- Ultimately, I think we could even see resistance all the way to the 149 yen level. So, I think the range is trying to define itself. This time of year, it is fairly quiet as institutional investors typically are on holiday. So, it does take a certain amount of volume out of the market.
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If we can break above the 149 yen level, and that's something I'm hoping to see, then I think we will go looking at the 151 yen level. Keep in mind that the interest rate differential does favor the US dollar, and despite the fact that the Federal Reserve might cut rates once or twice this year, it will still favor the US dollar. If we break down below the 147 yen level, then that probably shows more of a “risk off” type of trade, and it could send this pair down to the 144 yen level.
The other side of the coin, of course, is the fact that the Bank of Japan finds itself in a situation where there have been a few days in the last couple of months where there have been no bids for Japanese government bonds. That is a horrific situation. That means the Bank of Japan may have to step in and start buying debt, essentially quantitative easing. So, with that being said, even if the yen can somehow find its stability, I think the natural trajectory is still to grind higher here and traders will probably just take advantage of collecting that swap at the end of every session.
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