The US dollar has gone back and forth during the early hours on Tuesday, as it looks like the market is ready to consolidate gains.
The US dollar has gone back and forth against the Japanese yen during trading on Tuesday as we are trying to work off some of the excess profit from the last couple of weeks. Ultimately, this is a market that I think is just simply starting to kill time to build up enough momentum to go higher finally. The ¥145 level is likely the next target, while the ¥142.50 region should be the short-term support.
Looking at the chart, you can also see that there is a bullish flag that we broke out of, and this bullish flag measures for a move to the ¥148 level. Underneath there, we had previously been in an ascending triangle, which measured a move closer to the ¥149 level. In other words, this market eventually gets to go much higher, but in the short term, we must work off some of that momentum. This is typical because, in an uptrend, you get sideways action or some pullback after a burst higher like we had just seen.
Ultimately, even if we do pull back rather significantly, the 50-Day EMA is sitting right in the middle of the bullish flag, and I think it shows that the market is probably going to continue to respect that previous area as a bit of a floor in the market, assuming that we even pull back that far. I recognize that the interest rate differential between the Federal Reserve and the Bank of Japan continues to be very wide.
Therefore, we should continue to see the US dollar gain at the expense of the Japanese yen. For that matter, the Bank of Japan is still very much in its quantitative easing program, so one of the best trades this year has been to go short of the Japanese yen, not only with the US dollar but multiple other currencies such as the British pound, Australian dollar, New Zealand dollar, etc. I think that continues to be the case as we advance, so the US dollar will continue to be the winner in this market by default, as the Japanese continue to keep their rates so low.
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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.