• It’s easy to see that the US dollar continues to rally quite significantly against the Japanese yen at the drop of a hat, and therefore I think we got a situation where traders will continue to look at this through the prism of being a “carry trade.”
• After all, you get paid at the end of every day to hang on to this pair, and I think that is something that you need to be very cognizant of, and how much that can mean for institutions.

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Furthermore, we have a lot of noise out there when it comes to economic announcements, as the CPI and PPI numbers come out over the next couple of days. That obviously will have a major influence on what people think will happen in the United States, perhaps more importantly what’s going to come out of the Federal Reserve, which at the end of the day is the only thing that most traders seem to care about. With that being the case, I think you’ve got a scenario where the carry trade will continue to be a major issue.

Technical Analysis

The technical analysis on this pair is obviously very strong and it looks like the ¥160 level underneath is going to be a short-term floor in the market. We also have the 50-Day EMA near the ¥158 level, an area that previously has been important. However, the ¥160 level is an area where the Bank of Japan had recently intervened, so there is a lot of “market memory” there, so I think it would be difficult to break down through that level unless of course the inflation numbers in the United States are that horrific.

Even if the Federal Reserve were to cut rates wants between now and the end of the year, the interest rate differential is still a huge factor on what happens next, and therefore I think you need to realize that even in a situation where there is a 25 basis point interest rate cut in the United States, something that’s definitely not a 100% possibility, you still get paid to hang on to this pair and at the end of the day that continues to be the main factor.

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