US Dollar Pulls Back From Highs Against Yen

The US dollar has pulled back a bit against the Japanese yen from the recent highs. The question now is whether or not we are forming a bit of a “double top”, or are we simply pulling back in order to build up a bit of momentum? Interest rate differential would suggest that eventually we break out to the upside but there is also the concern around the world of economic volatility, and that can sometimes favor the Japanese yen.

USD/JPY Video 14.02.22

The ¥115 level underneath should end up being rather supportive, but mainly from a psychological standpoint. The reason I say this is that we have sliced through it a couple of times recently, and that typically takes out some of the importance. Ultimately, this is a market that I think continues to see a lot of noisy behavior, mainly due to the fact that both are considered to be safety currency, but at varying levels.

The 50 day EMA reaching towards the ¥115 level could offer a little bit of support as well, but pay close attention to the 10 year yield, because if it starts to go a lot higher in a very quick amount of time, that will more than likely send this pair much higher as JGB yields are being suppressed by the Bank of Japan. In fact, the Bank of Japan has recently quoted that they are willing to buy “an unlimited amount of bonds” in order to keep yields down. As long as that is the case, this will more than likely end up working in favor of the US dollar over the longer term.

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