The US dollar pulled back initially during trading on Thursday, as the 109.50 level has caused a bit too much in the way of resistance. I think that the major resistance barrier is probably closer to the 110 handle, so we aren’t quite there, but I think that since we became so overbought, it’s necessary to pull back from here and build up the necessary momentum. If we can break above the 110 level, that could send this market much higher. I believe that the market will continue to see a lot of volatility, and of course the usual causes of volatility will be noticed in this pair.
The pair is sensitive to risk appetite, but it is also sensitive to interest rate differentials, which most traders will use the 10-year treasury note as a baseline. If it starts to rise in interest rate offered, that makes the US dollar much more attractive than the Japanese yen as the Japanese pay almost no interest. The S&P 500 is a great proxy for risk appetite when it comes to this pair as well, so keep that in mind also. I believe that the 107.50 level underneath is the “floor” in the market, so it’s not until we break down below there that I would consider selling. Dips should continue to be buying opportunities.