The US dollar has plunged during the trading week to test a major trend line that the market is paying close attention to, and of course the crucial ¥140 level underneath can be thought of as a major area of interest as well.
The US dollar initially did try to rally during the course of the week, breaking towards the 144 yen level, only to turn around and crash into major support near the 141 yen level. I think at this point in time we are most certainly on the very thin edge of whether or not this market can turn around or not. Keep in mind that the Federal Reserve is likely to cut rates, but at the same time the Bank of Japan can only hike rates so much. The debt load that the Japanese have is astonishing and therefore it’s very likely that we don’t see the Japanese being able to finance their debt at a higher rate.
That being said, we also see a lot of inflation numbers coming out of the United States hotter than anticipated. So, there is the chance of a turnaround. We’ll just have to wait and see, but if we break down significantly below the 140 yen level, then I think this is a market that breaks much, much lower. It is oversold, but that doesn’t really matter, markets tend to crash from oversold conditions, and therefore it is something that you need to pay attention to and accept.
If we turn around and break above the weekly candlestick, which is right around that 144 yen level, then you might see people coming in to try to push this pair higher. While I don’t necessarily think that is going to happen easily, it is something that we need to keep in the back of her mind.
For a look at all of today’s economic events, check out our economic calendar.
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.