- The US dollar has initially fallen against the Japanese yen to kick off the week on Monday, but really at this point in time, this is a situation where we are testing a major swing low.
- And the fact that we have bounced for the second day in a row from just below the 143 yen level tells me that there is a real probability of the market bouncing here and trying to form some type of bottom.
If we turn around and rally from here, breaking above the 145 yen level for me is a signal that perhaps we may continue to grind to the upside. If we were to turn around and break down below the wicks of the last couple of days, then we will almost certainly test the 140 yen level.
Interest Rate Differentials
Keep in mind that the interest rate differential continues to favor the US dollar, but the bond market has been a bit insane, although yields on the 10 year are starting to drop below 4 % again. So that is a significant thing to pay attention to all things being equal. This is a market that I think could rally as high as 148 yen before we see resumption of the downtrend, a move above 150 yen obviously would change the overall trend, but we are so far from there. It’s not even a thought.
A short-term bounce is something that I would expect, but with the way that the news flow has been as of late, it could just take one tweet to have people running to the Japanese yen for protection in general. This is likely to be a very noisy event. But if you see this pair rise, you probably see the Japanese yen lose ground against other currencies such as the New Zealand dollar, British pound, etc.
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