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Christopher Lewis
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The US dollar has initially pulled back during the trading session on Wednesday but has found plenty of buyers underneath the ¥106 level to bounce a bit and show signs of life. Ultimately, this is a pair that is highly influenced by the 10 year note differential between the two countries. With the United States showing higher rates as of late, it makes quite a bit of sense that we would continue to see the US dollar gain in general, and I think that short-term pullbacks will continue to attract a certain amount of attention. The biggest problem here is that we are in the midst of a major trend change, and that almost always takes a significant amount of effort.

Given enough time, we will break out to the upside at this rate, but I think that is probably closer to the ¥106.50 level. To the downside I see the 200 day EMA as offering support on any type of pullback, unless of course the interest rate differential starts to close a bit. All things been equal, I do think that this market has quite a bit further to go, as the US dollar has been oversold to begin with, and of course there could be a dollar shortage due to the high amount of demand coming from the commodity trade.

All things been equal, I think we could go to the ¥110 level over the next six months, but this pair is going to be choppy as per usual. To the downside, I believe that the 50 day EMA is going to be your floor.

For a look at all of today’s economic events, check out our economic calendar.
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