US Dollar Plunges Against Japanese Yen

I think you have a lot of noise ahead of you, so you are going to need to be very cautious with your position sizing.

• The US dollar fell again against the Japanese yen on Monday as we continue to see a lot of problems out there.
• Ultimately, this is a market that I think given enough time we will have to find some type of stability, or we will break down rather drastically.
• The market is likely to continue being noisy in general, as we have a lot of different things going on at the same time.

Expect Buyers

The US dollar has dropped down to the ¥132 level, an area that is the beginning of a significant area of “market memory” that we will be paying attention to from both sides. Ultimately, this is a market that is paying close attention to the Bank of Japan, and what it is doing with its interest rates. Furthermore, interest rates in the United States have been falling, so at the same time, it looks as if the Bank of Japan will have to do a lot less quantitative easing, at least in this environment. This is part of why the Japanese yen has strengthened. That being said, the market was also overbought, so a little bit of a pullback does make quite a bit of sense. With this being the case, I think you are more likely than not going to see buyers jumping in sooner or later, and we are at the first major support region.

If we do break down from here, the next major support level is closer to the ¥127.50 level. That is an area where we have seen a lot of buying pressure previously, so I think it makes quite a bit of sense that “market memory” comes into play. Breaking down below that level could open up a significant selloff, sending this market much lower. At that point in time, I would assume that the uptrend is over. On the other hand, if we turn around and bounce at one of these levels, it’s very possible that we could continue to go much higher. Either way, I think you have a lot of noise ahead of you, so you are going to need to be very cautious with your position sizing. We do not have a set up to start buying quite yet, so I am essentially sitting on my hands at the moment.

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