The US dollar has rallied during early trading on Monday with interest rates in the United States climbing. At this point, we start to watch for the Bank of Japan.
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USD/JPY Climbs Toward Key Resistance as Interest Rate Gap Expands
The US dollar has rallied during early trading on Monday as we continue to see a lot of interest rate noise out there with the 10-year yield in the United States bouncing a bit. All things being equal, this is a market that I think is going to continue to go looking to the 160-yen level.
The 160 yen level is an area where the Bank of Japan has gotten involved by intervening, and with that, I think you have a situation where a lot of traders will be looking to take advantage of the potential for some type of breakout because quite frankly, if the market were to break above the 160.50 yen level, that is a major breach of significant resistance that goes all the way back to 1990.
With that being said, I believe you have to look at this as a buy on the dip market. I do think it is probably only a matter of time before any drop attracts attention and perhaps gets people to take advantage of cheap US dollars. The 50-day EMA is at the 158.46-yen level. I think that is your short-term floor.
Chasing the Interest Rate Differential
I do recognize the Japanese will probably continue to complain, but the reality is that traders will continue to chase the interest rate differential that of course favors America. With this, I do believe eventually we will challenge the Bank of Japan again. If they intervene, then I will do the same thing I did last time. I will just simply wait for the dust to settle and buy again. If we break out above the 160.50-yen level, then I think this thing could really take off.
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