The US dollar started out positive on Tuesday against the yen in Asian trading, but then fell to test a trendline. It has since bounced, and it looks like we are trying to find some type of support in order to get the overall trend back in effect. At this point, I think we have to ask a lot of questions about the support underneath, so jumping in with the huge position is probably not advisable. However, I think that the overall longer-term trend will still be important to pay attention to, and therefore you’ve got a situation where we could find ourselves bouncing toward the ¥149.80 level, an area that I think if we break above we could see buyers jumping back into the market.
On the other hand, if we turn around and break down below the ¥146.80 level, then we could see the Japanese yen start to strengthen against the greenback, dropping this pair toward the 200-Day EMA. That might be a bit much to ask for, especially considering that the interest-rate differential favors the US dollar, but a lot of traders are out there screaming for lower rates in America, and they think that they will get it. You have to give it to them, the Federal Reserve has trained them to behave like that and therefore they feel entitled and expect to see the Federal Reserve loosen monetary conditions for them. This is the way the game has been played since the Great Financial Crisis, so now we are playing a huge game of “chicken.”
All things being equal, I do think that we will see a explosive move sooner or later, but we may have some grinding to do in the meantime, so keep that in mind. With this, I like the idea of perhaps buying dips, but doing so slowly and building up a position. If we can take out the ¥149.80 level above, then I think we can really start to take off to the upside, perhaps to go looking to the ¥151.50 level. Expect choppy noise, but at this point we are still very much in an uptrend.
Being FXEmpire’s analyst since the early days of the website, Chris has over 20 years of experience across various markets and assets – currencies, indices, and commodities. He is a proprietary trader as well trading institutional accounts.