Traders continue to jump in and buy the dollar against the yen in this environment. With this, the carry trade is still going.
USD/JPY
The U.S. dollar has initially fallen against the Japanese yen during the trading session here on Thursday to test the 200-day EMA. That being said, we have turned around to show signs of life, and now it looks like we are just kind of hanging around these moving averages.
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The 200-day EMA and the 50-day EMA both end up being a bit of a support level. It is flat. It does suggest that perhaps we are stuck in a range. That being said, when you look a little further out, you can see that the ¥156.50 level and the ¥159 level offer a significant amount of support and resistance. If we can break out of this area, then we can really start to move.
Rates are moving everywhere
Keep in mind, one of the things that is moving the U.S. dollar at the moment is the fact that the Federal Reserve may have to continue hiking based on inflation via energy, etc.
Rising rates in the United States continue to put that upward pressure on the dollar. At the same time, the other major factor is that the Japanese have intervened a couple of times recently, and it does provide a little bit of padding for the yen. This is a temporary thing at best though, and should be treated as such.
Nonetheless, the carry trade is strong here. The interest rate differential is still wide enough to drive a truck through. I still prefer to buy short-term pullbacks as long as we can stay above the ¥156.50 level. A break above ¥159 immediately puts the ¥160 level in focus. Anything above there, then we really start to fly.
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