Potential Signal:

• I’m a buyer of this pair at the ¥156 level.
• I would have a stop loss at the ¥154 level, and be aiming for the ¥158.50 level

(Click on image to enlarge)

During the trading session on Wednesday, we have seen the US dollar rally rather significantly, reaching the 50 Day EMA to find a little bit of resistance. If we can break above the 156 yen level, the US dollar could really take off to the upside, and as the Core CPI number has come out at 0.4% instead of the expected 0.3%, it suggests that the Federal Reserve will have to stay somewhat tight in the sense that monetary policy continues to have to fight inflation.

Technical Analysis

The technical analysis is somewhat in flux, but after the massive move that we have seen during the trading session on Wednesday, I think we have a situation where buyers are willing to come in and pick up the US dollar. The size of the candlestick is rather impressive, and it’s also worth noting that we bounced from the 200 Day EMA. The market has been in an uptrend for quite some time, and the fact that we have recovered as nicely as we have suggests to me that we are most certainly going to continue to see quite a bit of overall momentum.

Any pullback at this point in time will more likely than not end up being a buying opportunity, especially right around the ¥152 level, an area that has been important over the last week or so, and the fact that we have the 200 Day EMA sitting right around there. If we do break above the ¥156 level, I don’t see anything keeping this market from running to the ¥158.50 level, perhaps even higher than that.

Keep in mind that the Bank of Japan continues to keep its monetary policy loose, although it is starting to talk about fighting inflation. Regardless, you could drive a truck through the interest rate differential spread between these 2 economies, and with that being the case, I think you still have to favor the US dollar, because if for no other reason, you get paid at the end of every day.

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