USD/JPY Forecast – US Dollar Continues to Drift Lower

US Dollar vs Japanese Yen Technical Analysis

You can see that the US dollar has dropped rather significantly against the Japanese yen during trading on Friday as the jobs number disappointed and it looks as if traders are betting on the Federal Reserve cutting rates. That being said, the swap between these two currencies is still astronomically wide and therefore it’s expensive to short this pair over the longer term. Because of this, I think it’s probably a short-term dip and I’m paying close attention to the 147.33 yen level because if we can recapture that, then I think it’s a signal to start buying again.

We are currently between the 50-day EMA and the 200-day EMA indicators and this is generally an area where you see a lot of noise, so we’ll see whether or not this holds. I think the knee-jerk reaction to the jobs number will be interesting to watch, but I’m not planning on getting involved at this point. The market has been extraordinarily volatile over the last couple of days, and as we have fallen like this, I think it will eventually be looked at as a buying opportunity. I could be wrong, but I’m not overly concerned about the US dollar against the Japanese yen until we break down below the 143 yen level.

This could end up being a significant dip, but we saw one at the end of last year, and this might just be more of the same. Interest rate differential continues to get you paid at the end of the session every day, and that is something that you do have to keep in the back of your mind. It’s not until the Federal Reserve cuts rates several times that the interest rate differential will get narrow enough to make it somewhat of a fair fight. And of course, the Bank of Japan is nowhere near doing anything to tighten its monetary policy. So I do look at this as a buying opportunity, but I would scale in. I wouldn’t necessarily jump in with a ton of money in one shot.

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