The US dollar has rallied a bit during the Thursday session, bouncing from a crucial support area and paying close attention to the interest rate differential between the United States and Japan.
Yesterday on Wednesday, we got word out of the Treasury Department in the United States that they were in fact going to start purchasing more long-end bonds, mainly just next year to or next month to increase liquidity, and as a result, the dollar tanked.
That being said, the carry trade seems to be back on, and it's not just here in the USD/JPY pair. It's in multiple other currency pairs, like even against the Swiss Franc.
Carry Trade Resumes as Dollar Defends Key Support and 200-Day EMA
The 200-day EMA and the 158 Yen level both are important from a forex technical analysis standpoint. Plus we have an uptrend line, and those all seem to have held quite nicely. With interest rates climbing to the 4.70 level and beyond in the 10-year yield in the United States, and of course the fact that Bank of Japan has rates at roughly 1%, it doesn't take a lot of imagination to understand why the carry trade is so interesting to traders right now.
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That being said, the question now is whether or not the Japanese can raise rates, and while there is some talk of them possibly doing so, it's still going to take quite some time to overcome that interest rate differential.
So, with that, I remain bullish. I think this is a structural problem for the Japanese Yen. The Japanese Yen is a massive player in the world financial markets as a funding currency. We'll see how this plays out, because the Japanese, unfortunately, have a debt load that would make even the United States blush. So, they're kind of stuck, and therefore I think the market is calling their bluff.
I remain long. I've been long of this market for months, even sat through a couple of interventions, but looking to add here.
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