- I analyze the USD/JPY pair’s quiet consolidation near recent highs, viewing it as a setup for continued strength.
- With the Fed staying tight and the Bank of Japan remaining loose, I expect dollar gains toward 158 yen and prefer buying dips.
It’s been pretty quiet during the trading session on Friday in the US dollar against the Japanese yen currency pair, as we are just hanging around the highs. That’s actually a good sign after the impulsive candlestick that we had seen during the trading session on Thursday, because it means we’re comfortable being here. If that’s going to continue to be the case, then I would anticipate that eventually the US dollar really takes off towards the upside, perhaps targeting the 158 yen level.
The 153 yen level had previously been significant resistance, and breaking above there meant something. Now I would anticipate that there’s a little bit of market memory coming into the picture, offering a bit of support. Breaking down below that level then opens up the possibility of a move down to the 151.50 yen level, where we had seen some support previously.
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FOMC Shocked Many
Keep in mind that the Federal Reserve has shocked the market in the sense that they have flat out said—and reiterated during the press conference at least twice—that a rate cut in December is not a given. In other words, the Federal Reserve may stay tighter for longer, and if that’s going to be the case, then the US dollar is completely mispriced. I think somebody out there had been sniffing this out in the market for a while because the US dollar bottomed not only here but in multiple other currencies at the last FOMC meeting.
It’s almost as if the Federal Reserve is trying to explain to the market that they will be slow and methodical about cutting rates, and the market forgets this after a couple of days, tries to fight the Fed, and then gets a dose of reality again. The Bank of Japan will continue to be fairly loose with its monetary policy from now till eternity, more likely just due to demographics.
They can jawbone the pairs back down, but that’s a short-term fix at the end of the day. The steamroller that’s coming is the US dollar, and of course, the Japanese yen is weak against everything. So, the dollar should have a field day. I am a buyer of dips going forward, and I do expect it to go much higher.
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