The US dollar has pulled a bit in the early part of trading on Friday, as we are seeing a bit of profit-taking and lower rates for the day in America.
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USD/JPY
The US dollar has pulled back slightly against the Japanese yen heading into the weekend, which isn't a huge surprise. We've rallied quite nicely over the last several trading sessions, and now it looks like we are trying to figure out whether or not we can continue.
Ultimately, the interest rate differential is what has been attractive to me, and I have been adding on short-term dips. I think a lot of carry traders are probably doing the same thing, because you do get paid at the end of every day to buy the dollar against the yen. While the yen is considered to be a safe currency, the US dollar is as well, and the interest rate differential is wide enough to drive a truck through. We are looking at somewhere around the neighborhood of 3 to 3.5% over the last several months, and while that doesn't sound like much, it moves the forex markets quite significantly.
Carry Trade Thesis and Key Support Levels
The 162 yen level underneath is an area that has been like a magnet for price for a while, and I think that continues to possibly be a short-term floor. The 50-day EMA is racing towards that area as well, and that, of course, is an indicator that a lot of people watch. It's almost acted like a trendline as of late.
While we have seen the interest rates in America drop during the trading session on Friday, they are still extremely elevated, so the long-term thesis of the carry trade still plays out here. We've recently hit highs that go back to 1985 or so. Those things don't happen without a reason. The Bank of Japan has intervened from time to time, and quite frankly, all they've done is offered cheaper US dollars for those willing to grab them.