USD/JPY, USD/ZAR, USD/MXN and USD/PLN Forecast – Carry Trade Continues to Pay Those Who Take It

USD/JPY Technical Analysis

The US dollar has pulled back a little bit against the Japanese yen to start rising again. While I am very bullish about this pair, I think somebody who is not involved in this market probably needs a pullback, maybe back to the 50-day EMA to find value. Mainly because the 158-yen level is an area that’s obviously resistant and has a huge amount of supply.

If we can break above 158 yen, then 159 yen is your next barrier. I still believe we go higher over the longer term as the Bank of Japan cannot tighten monetary policy. Of course, the Federal Reserve has been stubborn, but this is more or less an opportunity hopefully to buy on the cheap on a dip.

USD/ZAR Technical Analysis

The second pair I’m looking at is the US dollar against the South African rand, which has shown itself to be quite negative during the session on Friday after reaching the 50-day EMA. The 16.5 level continues to be an area of resistance. Like with all of these pairs, you are going to be paid at the end of every day the interest rate differential, in this case, to be short.

The South African rand does pay a higher premium, and you have to keep in mind that the South African rand is backed by a commodity economy, and commodities have been the place to be as of late. I still like fading rallies. I think we could reach towards 15.5.

USD/MXN Technical Analysis

The US dollar against the Mexican peso is the same story. It’s about fading US dollar strength, even when the US economy is doing well because Mexico is the world’s largest exporter into the United States. This is a little bit of a double whammy in the sense that if the US is doing good, they are buying more Mexican products.

That means money’s flying from North to South, and you get paid swap. It’s got a lot of different things working for it, not to mention the technical analysis. This is a pair that has been extraordinarily negative for a while, and I think it’s going to hit 17 pesos in the next couple of weeks. This is a pair that can have somewhat of a widespread, so make sure that you have your position size calculated correctly.

USD/PLN Technical Analysis

Finally, the US dollar against the Polish zloty. The 3.6 area to 3.5 area is an area that had previously been supported and now looks as if it’s trying to offer resistance right along with the 50-day EMA. While the carry in this pair isn’t much, it does favor Poland. Poland is a part of the periphery of Europe as well.

I do believe that with the Polish economy growing the way it has over the last several years, this will continue to be a pair that becomes more and more popular. You do get paid to be short of this, just like against the South African rand or the Mexican peso, although not as much. We are getting ready to roll over. A drop from here could open up a move down to the 3.5 level.

Keep in mind these are all carry trade situations, so it isn’t about what the next 20 pips will be. It’s about collecting that swap over a long period of time and cushioning your balance in your account. Think of them as dividends.