USD/JPY Forecast: USD Finds Buyers Against The Japanese Yen

  • The US dollar initially fell during the trading session on Thursday but found the support level that I had been talking about previously as reason enough to get long.
  • The ¥132.50 level has held firm, and now it looks as if the USD/JPY currency pair is trying to go higher again.
  • Keep in mind that this pair has been almost solely driven by interest rates, so you will need to keep an eye on the bond markets.

The US dollar has seen interest rates in America drop a bit, which of course has been negative for the greenback. However, we have also seen a little bit of stabilization, and that has helped the Japanese yen. The reason for that is that the Bank of Japan continues to defend the quarter percent peg on the 10-year bond, meaning that if interest rates start rising everywhere, that means that there is a bit of a “knock-on effect” in the Japanese bond market. Looking at this chart, you can see that we had been in a long-term uptrend and as the interest rates in America had been rising, we had seen the Japanese have to print more yen. This has been a perfect set up for this trade, and now it looks like we may continue to see that.

The 50 Day EMA sits above the highs from the trading session on Wednesday, so if we were to break above there, then it’s possible that we could see a bit more bullish pressure at that point as the market would start to see it as momentum building up. At that point, the market is likely to test the highs again, and perhaps even further. I think the ¥140 level could be a possibility, but it probably is going to take a significant amount of momentum to make that happen. I would anticipate a lot of noise, and therefore you will have to be very cautious about your position size. Ultimately, as long as we stay above the ¥132.50 level, not much is changed, and it looks bullish. If we break down below there, then we could be looking at a move all the way down to the ¥127.50 level. Either way, you will have to keep an eye on the bond markets, and interest rates as to where they are going.

(Click on image to enlarge)

USD/JPY chart

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