USD Trades in Channel Against Yen

I will be looking for this market to show signs of a bounce, and then will get long again.

The USD/JPY pair initially rallied Wednesday but gave back gains to show signs of hesitation. That being said, we are still very much in the same up-trending channel that we have been in for a while, and I think we have a scenario where the market will give us plenty of opportunities occasionally. The market dipping gives us an opportunity to pick out the US dollar against the Japanese yen which is the epitome of central-bank divergence at the moment.

It’s worth noting the 50 Day EMA sits below near the ¥133.50 level and is rising to meet the bottom of the up trending channel. This could end up being a buying opportunity, but we will have to wait and see whether or not the buyers return. I would be very cautious, but it is worth noting that the interest rate differential between the United States and Japan continues to widen, as the Federal Reserve raised interest rate 75 basis points. I think given enough time, this is a market that will take off to the upside and not look into the ¥140 level.

On the downside, if we were to break through the bottom of the up trending channel, we could test the 50 day EMA, which is an area that I think is worth paying close attention to as a lot of traders like that as a dynamic support level. Because of this, that could be where the market pulls back to before the buyers combine, and even after that, we have the possibility of a move down to the ¥128 level. That’s an area that I think would see a lot of interest as we had bounced from there previously. Anything below there then changes the trend.

As things stand right now, it’s likely to remain a “buy on the dip” market, just as we have seen over the last several months. Until something changes fundamentally from either central bank, I believe that is difficult to get short of this market, and you have to follow the trend. Trends like this don’t and overnight, so I would anticipate plenty of momentum still be a major part of what we are seeing here. Because of this, I will be looking for this market to show signs of a bounce, and then will get long again.

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