USD/JPY Weekly Price Forecast – US Dollar Continues to Grind Higher

The US dollar has rallied quite a bit against the Japanese yen during the trading week but has given back about half of the gains. While this would typically concern me, the fact that we are quite frankly in the midst of a potential trend change makes this move unsurprising. We broke through the 50 week EMA, but then pulled back again to test the 200 day EMA and hold it. In general, when you look at the downtrend line you can see just how steep it was on the weekly chart, so a breakout should not be a huge surprise.

As the 10 year note continues to see yields rise, that will have more people looking towards the US dollar in this pair, because this pair is so highly correlated to the 10 year interest rates of both countries. The higher that interest rate goes, and during the Friday session we broke above 1.32%, the higher this pair is going to go because it then becomes the old-fashioned “carry trade.” If we can break above the top of the weekly candlestick, I think that will add more fuel to the fire and a potential move towards the ¥108 level.

Pullbacks at this point are still buying opportunities as far as I can tell, unless of course we break down below the ¥104 level, which would put the previous downtrend line under pressure, and would suggest a potential “false breakout” has just happened. However, I think you need to see yields dropped significantly before that happens.