• The USD/JPY has fallen a bit during the trading session on Wednesday in an almost exact copy of the previous 24 hours.
• The ¥136 level has offered support, and now it looks as if we are going to continue to see people pay close attention to that area.
• If we continue to see that area hold, then I think it’s probably only a matter of time before the US dollar takes off against the Japanese yen. This makes a lot of sense, considering that the Bank of Japan continues to buy “unlimited bonds” in order to keep the 10-year yield down to 0.25% or lower.

The last couple of days have been relatively quiet as the world awaits the Jackson Hole Symposium to get done. The Friday morning session features Jerome Powell giving a speech at 10 AM Eastern Standard Time, meaning that the world is going to listen to determine whether the Federal Reserve is going to become extraordinarily hawkish, or if they are going to pivot. Wall Street has gotten into its head that the Federal Reserve is going to pivot, but quite frankly they have said multiple times since then that the markets have misread the central bank. In other words, we are playing a game of chicken.

Look For Buying Opportunities

At this point, I think dips continue to offer buying opportunities, especially with the 50-Day EMA underneath and rising. I do think that we eventually get to the ¥140 level because the Federal Reserve is going to be extraordinarily aggressive, as the inflation numbers in the United States measure 8.5% year-over-year. This is more than 4 times what the Federal Reserve aims for, so they will have to do everything they can to beat the economy down in order to drive down demand. As long that’s going to be the case, it’s difficult to imagine a scenario where this pair does anything different unless the Bank of Japan finally gives up its quantitative easing, something that it is not going to do anytime soon. The trend should remain, but the next 24 hours might be a bit quiet as we wait for some type of confirmation. With this being the case, the trend should continue to be followed.

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Every dip should be thought of as a potential buying opportunity.

The USD/JPY has fallen to kick off the trading session on Tuesday, but found enough support near the ¥136 level to turn around and form a hammer. This is a market that looks as if it is ready to go higher given enough time, but we may have a little bit of work to do in the meantime. After all, we have the Jackson Hole Symposium going on, and central bankers from around the world will be speaking. In other words, there’s a really good chance that there will be a lot of headline noise in the short term.

Breaking down below the bottom of the candlestick would make it technically a “hanging man”, but I don’t necessarily think that would be the end of the world. That will more likely than not send this market looking to the 50 Day EMA, and then perhaps even as low as the ¥132 level. It’s not really until we break down below that level that I would be concerned about the overall trend. This is a market that I think will find plenty of buyers between now and then, especially if interest rates continue to climb, like they have been in bond markets, not only in the US but worldwide.

Remember, the Bank of Japan has to worry about rising interest rates on the whole, because they need to keep the 10 year yield at 0.25% or lower. In other words, they need to print currency in order to buy “unlimited bonds.” With that being the case, it makes sense that the Japanese yen will continue to fall, and as a result every dip should be thought of as a potential buying opportunity.

Noises from Central Bank

• Keep in mind that there is a certain amount of a risk appetite play here, but the Japanese yen, although a safety currency, also has this noise coming from its own central bank.
• The US dollar is the world’s favorite safety currency as well.
• We may see this market go higher regardless of what happens next, unless of course there is some type of drastic change in the attitude of the Bank of Japan, something that they have shown very little interest in doing.

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As things stand right now, this market looks as if it will continue to be bought every time it dips significantly.

The West Texas Intermediate Crude Oil market initially fell during the trading session on Thursday as the market approached the crucial 50 Day EMA, and the $112 level. The market had broken below the top of the previous ascending triangle but has found enough buyers in that area to turn things around. In fact, it looks as if the market is going to continue to climb from here and perhaps go to the $120 level in the short term.

If we can break above the $120 level, then it’s likely that we will see this market attempt to get back to the $124 level, and further. The oil market has been very bullish for quite some time, and nothing has fundamentally changed the outlook for oil in the meantime. Yes, China locked itself back down, and that could in theory at least drive down a little bit of the demand. However, we spent the last two years not drilling, so it makes a certain amount of sense that we would see a serious imbalance in the markets. Furthermore, there’s still the problem in Ukraine with the war and the fact that a lot of Russian oil has been taken off the market.

At this point, it looks as if the oil market will continue to attract a lot of inflow, but it’s probably worth noting that it’s a very crowded trade. Crowded trades can have vicious pullbacks occasionally, so you need to be cautious on that front. That being said, the market is likely to continue going much higher, reaching the $130 level initially, perhaps even $135 over the next several months.

On the other hand, if we were to turn around a break down below the bottom of the previous triangle, that would be a very negative turn of events, by breaking through multiple support levels. In that scenario, I would anticipate that the WTI Crude Oil market would fall apart as everybody would be running through the exits at the same time. It’s very difficult to imagine that happening, but it is something that you need to keep in the back of your mind. As things stand right now, this is a market that looks as if it is one that will continue to be bought every time it dips significantly.

At this point, it is probably only a matter of time before we have to make a bigger decision so I am more than willing to follow a large candlestick.

The German DAX index gapped slightly higher to kick off the Monday future session but then fell rather hard. That being said, the market has found enough support at the €13,871 level to turn things around and form a hammer. Now the question is whether or not the hammer is going to show some type of continuation to the upside or if it will be a scenario where we break down below the bottom of the candlestick to form a “hanging man”, which of course is a very negative turn of events.

I do think that it is only a matter of time before we have to make a bigger decision, but it is also worth noting that the 50-day EMA sits just above and is starting to break down. The 50-day EMA is an area where we would see a lot of dynamic resistance, so if we can break through there then it gives the DAX an opportunity to test the €14,250 level, an area that has been important a couple of times in the past. If we can break above there, then you can make an argument for a nice trendline break as well, allowing the DAX to go to the €14,750 level.

If we break down below the bottom of the candlestick for the trading session on Monday, then it opens up a potential selloff down to the €13,500 level. We have been in a down-trending channel for a while so it does sense that we would see a continuation of what has been going on as far as the trend is concerned. That being said it does look as if the market is trying to continue to press against the downtrend, but given enough time, I think we have got a situation where we have to make a bigger decision. Whether or not the ECB is willing to loosen monetary policy to bail out the markets would be a completely different question, but we also need to pay attention to the global economy as the DAX is highly levered to exports coming out of Germany. At this point, it is probably only a matter of time before we have to make a bigger decision so I am more than willing to follow a large candlestick.