The US dollar rallied during the day on Tuesday, reaching towards the recent consolidation area. The pair of course is very sensitive to stock markets overall and the risk appetite in general, so I think that we should pay attention to the S&P 500 as a result.
The US dollar has rallied from the 61.8% Fibonacci retracement level at the 100 level ¥0.50 level, an area that has been important more than once. I think that the market may be a bit oversold at this point, so it would make sense to see a bit of a rally. If the markets cool off a bit and start to focus on fundamentals again, we could see this pair rally due to the interest rate differential if nothing else. The interest rate outlook for the United States obviously is multiple hikes, while the Bank of Japan is just now starting to taper off of quantitative easing. With that in mind, it makes sense that this pair should rally. The pullback from the ¥114.50 level makes sense as it was a massive barrier to overcome, and now that we have pulled back from here, it’s likely that some value hunters will show up soon.
Looking at the chart, I think that the ¥113 level is probably a realistic target, if not another move towards the ¥114.50 level above. That’s an area that has been massive in its implications, so I wouldn’t expect to break above it right away. I don’t necessarily think that this is going to be the easiest trade to take, but clearly it looks as if the buyers are starting to make a bit of a statement again. If we were to break down below the 100 level ¥0.50 level, then I think the market probably goes looking towards the ¥110 level.
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.