The US dollar rallied at the open on Monday, as people continue to pay close attention to the interest rate differential between the US and Japan.
USD/JPY
The US dollar rallied a bit against the Japanese yen during the trading session on Monday as we continue to see the interest rate differential play out here in real time. The US dollar obviously pays a bit of swap against the Japanese yen at the end of every session, and it looks like that won't change anytime soon, as the Bank of Japan is sitting right around the 1% level as far as interest rates are concerned, and the Federal Reserve is likely to have to raise interest rates by 25 basis points by the end of the year.
Top Regulated Brokers
In other words, you get paid to hold on to this position, being to the long side that is, and therefore traders will continue to take advantage of that. We have recently broken out to a fresh high that goes all the way back to the 1986 swing high.
Long-Term Bullish Targets and Potential Intervention
If we break above there, then the 162-yen level is an area that I think offers a little bit of resistance, but longer term I think the US dollar goes much higher. In fact, it would not surprise me at all if the US dollar ends up fulfilling the measured move of the rounding bottom to reach the 224-yen level before it's all said and done.
I understand that's a huge target, but quite frankly, at this point, it's the most logical thing to happen that the US dollar will continue to grind much higher against the Japanese yen.
The 160 yen level right now seems to be a bit of a floor, but keep in mind that the Bank of Japan might intervene from time to time, if for no other reason than to essentially slow down the destruction of the Japanese yen.
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