The US dollar pulled back ever so slightly against the Japanese yen on Wednesday, as the ¥136 level continues to be a short-term battlefield.
The US dollar has pulled back a bit during the trading session on Wednesday to show signs of exhaustion after a very bullish move lately. That being said, it is more likely than not only a matter of time before the buyers come back into the fold though, as it has been such a bullish trend, as the Bank of Japan continues to do everything it can to fight rising interest rates.
As long as they are doing that, there’s a very good chance that this trend continues, especially if the Federal Reserve is going to continue to tighten monetary policy. Essentially, you have a scenario where you have one bank doing quantitative easing, while the other one is doing quantitative tightening.
The ¥135 level is the next short-term support level, but I believe that the ¥132.50 level is even more important, as we had bounced from there previously. Beyond that, you have the 50 Day EMA hanging about the ¥130 level, which should offer a significant dynamic support level in and of itself.
Until the Bank of Japan changes its attitude, the Japanese yen is going to continue to struggle, not only against the US dollar but most currencies in general. Because of this, I look at short-term pullbacks as a potential buying opportunities and will treat them as such. That being said, the market is overdone and could see a significant pullback. It is not until we break down below the ¥126 level that I would start to look at the possibility of a trend change. Even then, you would need to see something change between the central bank differentials.
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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.