- The US dollar has rallied rather significantly against the Japanese yen during the trading session on Friday again, as I’ve been watching CNBC basically called the bottom in the dollar by talking about how it’s falling apart.
- The sentiment as of late has been an absolute disaster for the dollar.
- Everybody is questioning its world reserve currency status, the fact that it’s going to fall another 30%, the fact that the US is going to enter a major recession and fall apart.
You must understand that the reality of economic flows of capital across borders is a completely different story. Yes, there’s a lot of debt. Yes, there’s a lot of spending. No, it doesn’t really matter, at least not yet.
So having said that, it wasn’t surprising to me a couple of days ago when we started to see signs of life. In fact, it was brought up on the news that the US dollar broke the 140 yen level. What they didn’t mention was that it closed at about 141.5 yen. In other words, the rally had already started. So, while I am bullish in this market, I recognize it’s going to be a long fight.
You have a clear stop out below the 140 yen level. So, if we were to break down below there, obviously, it would be a major shift. But I do think a recovery rally makes perfect sense. The interest rates in America are far too high to want to hold the yen. The Federal Reserve is probably going to be stuck staying tight while the Bank of Japan has no chance whatsoever of tightening anywhere close to what the Americans are going to do.
Yen Overbought Everywhere it Seems
So, in this environment, I think you’re starting to see the noise in the yen fade, especially considering that I also see similar moves and other yen related pairs, but I am seeing the US dollar fight back a bit. The yen’s overbought. This bounce makes sense to at least, I’d say the 50 day EMA, but we’ll have to wait and see. I don’t expect to get there tomorrow or even Tuesday, Wednesday, whatever I just think in general we’re going to grind to the upside because that causes the most pain for those who are late to the move.
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