USD Pulls Back Slightly Against JPY

This is a market that I think will remain noisy, but by the end of the week I would not be surprised at all to see it rally further.

• The USD/JPY currency pair pulled back ever so slightly on Monday as the ¥135 level has offered a little bit of resistance.
• We are very much in an uptrend and that has not changed with this candlestick.
• The ¥132 level underneath will continue to be very crucial, and we need to pay close attention to it.

Trend Likely to Continue

If we were to break down below that level, then it opens up the possibility of a move down to the ¥127.50 level. Ultimately, this is a market that I think continues to be very difficult and noisy, but I’d be lying if I told you that I thought this is a market that suddenly going to change its trend. After all, the Bank of Japan continues to have to fight higher interest rates around the world, thereby buying their own bonds in Japan. That makes the Japanese yen worth less, as they are essentially “printing yen.”

If we were to break above the high of both Friday and Monday, then that opens up the possibility of a bigger move. At that point, I would anticipate that the pair could go looking to the ¥137.50 level. That’s an area that has seen a little bit of resistance but breaking above that could open up a potential move to the ¥140 level. In general, this is a market that I think is going to continue to move based on bond markets more than anything else, and of course, the CPI figures that are coming out on Wednesday.

The Federal Reserve will have to take into account what inflation is going on, so the idea of course is that if inflation continues to run hot, that is going to keep them very tight with their monetary policy. The reality is that’s the most likely situation, so you need to keep in mind that we will probably see the US dollar continue to cause quite a bit of pressure to the upside in this currency pair. If we can break above the ¥140 level, that would just kick off more of a “buy-and-hold” scenario. In general, this is a market that I think will remain noisy, but by the end of the week I would not be surprised at all to see it rally further.

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