The US dollar has rallied again during the day on Friday as we continue to see the USD/JPY pair rally rather significantly. We broke above the ¥137 level at one point during the day on Friday but gave back a bit of the gain as this is an area that’s been focused on previously and offered a certain amount of downward pressure then. Looking at this chart, it’s obvious that we are getting just a little bit extended, but I think the trend is still very bullish.

The 50 Day EMA sits at the ¥134 level and should continue to attract a lot of attention in and of itself. Even if we break down below there, then the ¥132 level is an area where you would expect to see a lot of support also. This is a market that I think continues to see a major move to the upside given enough time, but this will also be dependent on the bond markets in general. After all, the interest rate differential between the 2 countries continues to be quite wide, and therefore it makes quite a bit of sense that people would favor the greenback.

Is USD/JPY a good pair to trade now?

On the upside, the ¥140 level is an area where you would expect to see a bit of psychological resistance, and it looks like we are going to try to get there eventually. If we break above that level, then obviously that would be a very bullish sign. The US dollar has gotten quite strong over the last couple of days, so it’s not a surprise to see it do the same thing over here.

The Bank of Japan continues to work against interest rates and that country, trying to keep the 10-year yield at 0.25% or below. They are essentially “printing currency” every time they buy bonds, and therefore it makes sense that more supply would be negative for the value of the Japanese currency.

• The US dollar is the favored currency around the world, while the Japanese yen is one of the least wanted.
• This is essentially the “perfect storm” for market conditions as they stand right now.
• It’s not until we break down below the ¥130 level that I would be concerned about the overall trend in this pair.

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As a general rule, lower interest rates tend to favor the Japanese yen, which is what we are seeing as of late.

• The US dollar pulled back a bit against the Japanese yen in early Monday morning trading only to turn around and show signs of support.
• By doing so, the USD/JPY currency pair looks very likely to continue going back and forth, with the ¥133 area offering a bit of support.
• In fact, the ¥132.50 level seems to be even more remarkable when it comes to buying pressure, so I think we are essentially “stuck in this area” for the time being.

USD/JPY Technical Analysis

Ultimately, the 50-day EMA sits above the crucial ¥135.50 level, and I think will continue to offer a little bit of a technical barrier. Because of this, I will be looking at that as a gateway to much higher pricing, and if the US dollar can climb above that level, it’s very likely that this market would continue to see quite a bit of bullish pressure. Ultimately, the dollar could go looking toward the ¥140 level, which is an area that I think offers psychological and structural resistance based on historical charts.

On the other side of the equation, if we were to break down below the ¥132.50 level, we could go looking all the way down to the ¥127 level for support. I would also anticipate that the ¥130 level will at least be of psychological importance, so we could see noise in that vicinity as well. I do believe that given enough time, this is a market that continues to be very noisy to say the least, so you have to be cautious about your position sizing, but it’s obvious that it’s going to be much easier to go to the uptside than to the down, as it is with the longer timeframe trend.

The interest rate differential in the United States continues to favor the greenback over the yen, but if it appears that the Federal Reserve will have to be a little bit looser with its monetary policy than once anticipated, that could put downward pressure on this market. As a general rule, lower interest rates tend to favor the Japanese yen, which is what we are seeing as of late. In other words, the old correlations still remain, and it makes a certain amount of sense that we would see this play out in the same way.

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If yields around the world start rising, that’s an excellent buying opportunity in this market, and of course vice versa as we have seen this correlation play out for a while.

• The US dollar rallied during the Friday session to show signs of life again against the Japanese yen.
• The longer-term uptrend has been very strong, so it does make quite a bit of sense that we would see this area offer buyers given enough time.
• Overall, the USD/JPY currency pair will continue to pay close attention to the ¥132 level as potential support, but it’s also worth noting that we have been noisy over the last week or so.

When you look at this chart, you can see that we have shown a bit of a pullback as of late, but we had been a little overdone, and that’s part of a normal market. With the Bank of Japan continuing to print unlimited yen, via buying unlimited bonds, that does put a certain amount of downward pressure on the Japanese currency. However, if interest rates around the world are going to continue to fall, that releases some of that pressure on the Japanese, and thereby makes the Japanese yen strengthen.

Watch the Bond Markets

In other words, you need to pay close attention to the bond markets worldwide to get an idea as to how the Japanese yen may perform. If yields are dropping around the world, then it’s possible that we could see the Japanese yen strengthen. However, if we see a spike in rates, then it’s likely that the Japanese yen gets sold off quite drastically. In that scenario, we will probably look towards the 50-day EMA, which is just below the ¥136 level. If we can break above there, then it’s likely that the market then would perhaps try to make a move to the ¥140 level.

It’s almost impossible to trade this market without paying close attention to the 10-year yields worldwide, so I would have the chart open for the United States, Japan, Germany, and the United Kingdom. If yields around the world start rising, that’s an excellent buying opportunity in this market, and of course vice versa as we have seen this correlation play out for a while. I don’t think that will change any time soon, so as long as you keep an eye on all of these markets combined, it should give you a clear roadmap as to where we go next. Expect volatility, but expect that correlation.

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As long as we stay above the ¥132.50 level, not much is changed, and it looks bullish.

• The US dollar initially fell during the trading session on Thursday but found the support level that I had been talking about previously as reason enough to get long.
• The ¥132.50 level has held firm, and now it looks as if the USD/JPY currency pair is trying to go higher again.
• Keep in mind that this pair has been almost solely driven by interest rates, so you will need to keep an eye on the bond markets.

The US dollar has seen interest rates in America drop a bit, which of course has been negative for the greenback. However, we have also seen a little bit of stabilization, and that has helped the Japanese yen. The reason for that is that the Bank of Japan continues to defend the quarter percent peg on the 10-year bond, meaning that if interest rates start rising everywhere, that means that there is a bit of a “knock-on effect” in the Japanese bond market. Looking at this chart, you can see that we had been in a long-term uptrend and as the interest rates in America had been rising, we had seen the Japanese have to print more yen. This has been a perfect setup for this trade, and now it looks like we may continue to see that.

The 50 Day EMA sits above the highs from the trading session on Wednesday, so if we were to break above there, then it’s possible that we could see a bit more bullish pressure at that point as the market would start to see it as momentum building up. At that point, the market is likely to test the highs again, and perhaps even further. I think the ¥140 level could be a possibility, but it probably is going to take a significant amount of momentum to make that happen. I would anticipate a lot of noise, and therefore you will have to be very cautious about your position size. Ultimately, as long as we stay above the ¥132.50 level, not much is changed, and it looks bullish. If we break down below there, then we could be looking at a move all the way down to the ¥127.50 level. Either way, you will have to keep an eye on the bond markets, and interest rates as to where they are going.

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This is a market that has been noisy, but reliably positive. 

• The USD/JPY currency pair rallied significantly Friday to break above the ¥135 level.
• A lot of this has come down to the fact that the interest rates in America spiked after the jobs number came up much stronger than anticipated.
• Keep in mind that a lot of questions are being asked about whether or not the Fed is going to have to continue tightening or not, and by the end of the day on Friday it seemed that consensus has shifted from a potential 50 basis points in September to the possibility of 75.

Buyers to Come in On Dips

Looking at this chart, it’s obvious that we have a lot of the interest rate differential pricing, but at the same time, we have the Bank of Japan doing everything it can to keep interest rates down to 0.25% on the 10-year JGB. Because of this, the Bank of Japan continues to have to buy unlimited bonds, which is the same thing as printing unlimited yen. Because of this, the market is quite likely to see buyers coming in on dips, due to the fact that the Japanese are doing everything they can to keep those rates down. On the other side of the equation, you have the Federal Reserve which is in the process of tightening monetary policy. In other words, it sets up a “perfect storm” for a continuation.

Underneath, the ¥132 level is an area where you would expect to see support, just as we had previously. If we break it down through there, then the ¥128 level began significant support going forward, possibly being trend-defining level as well. Ultimately, it’s worth noting that we are breaking above the 50-day EMA as well, as it is an area that a lot of technical traders pay close attention to.

If we can continue going higher, it’s very likely that the markets will find plenty of reason to test the highs again. Quite frankly, this is a market that has been noisy, but reliably positive. The action that we had seen during the session on Friday should continue to add credence to the idea of this pair continuing to climb over the longer term. Breaking above the ¥140 level could be a huge deal going forward, allowing for more of a “buy-and-hold” scenario.

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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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Keep in mind that the crude oil markets have a major influence on this currency pair as the Canadian dollar is a proxy for that market for currency traders. 

• The Canadian dollar initially fell quite drastically against the Japanese yen as former Japanese Prime Minister Shinzo Abe was assassinated.
• While a tragedy, the reality is that it has absolutely nothing to do with the present situation in the Japanese economy.
• The market ended up rallying quite stringently, as the Japanese yen was sold off against almost everything. 

Impact of BoJ and Crude Oil

The Bank of Japan continues to buy unlimited bonds, and that has a negative effect on the currency as it is essentially the same thing as quantitative easing, or “printing yen.” Because of this, it makes quite a bit of sense that we would see this market continue to be more or less a “buy on the dips” type of situation, as we continue to try to find value. The ¥106 level is an area that was resistant previously, but it looks like we are becoming more and more aggressive on the breakout possibilities.

If we do break above the ¥106 level, then I think we have much further to go. Keep in mind that this is a strong uptrend and has been for a while. In fact, you can make an argument that this pair is quite a bit more sustainable than many of the other yen-related pairs, as it has not been quite as parabolic. On the other side of the equation, you have to keep in mind that the crude oil markets have a major influence on this currency pair as the Canadian dollar is a proxy for that market for currency traders. If crude oil rises, just as it did during the day, as a general rule this pair will rise right along with it as Japan imports 100% of its petroleum from foreign sources.

If we were to turn on a breakdown below the ¥102 level, that might cause a bit of a reset in this pair, perhaps even driving the CAD/JPY pair down to the ¥98 level, where would meet up with the 200-day EMA. The market breaking down below that indicator would be very negative, and would signify a trend change. However, it looks very unlikely at the moment.

Despite three trading sessions during which the price of the USD/JPY pair was subjected to selling operations, it moved towards the 134.75 support level. The general trend of the currency pair is still bullish, stabilizing around the 135.20 level at the beginning of this week’s trading. The US dollar pairs are awaiting the announcement of the content of the minutes of the last meeting of the US Federal Reserve, then the US job numbers. The US dollar is still the strongest with expectations of more US interest rate hikes during 2022.

US Federal Reserve Chairman Jerome Powell was not shy when he welcomed last Wednesday the extent to which financial markets could understand the Fed’s future guidance and the speed with which it moved to the rate in the series of interest rate hikes now underway. However, he also said nothing to encourage markets to go further than they already did, instead making it clear that everything about the Fed’s interest rate prospects depends on the path that US inflation takes over the coming months.

“I think people will look back on this period and say we were able to tighten financial conditions quite a bit, and we’ve only had three meetings where we raised interest rates,” Powell added. However, the forward price curve is priced in a price path much like the summary of economic forecasts my colleagues and I presented in June, and that’s a good thing. This is understanding the market and finding credibility in what we write and of course it is all very conditional but nevertheless I would say it is a positive thing.”

As I mentioned earlier, we are deeply committed to using our tools to bring down US inflation. The way to do that is to slow the growth, ideally keep it positive, and as I mentioned, supply and demand return to equilibrium. This is what we are trying to achieve. Is there a risk that we will go too far? Certainly there is a risk but I do not agree that this is the biggest risk to the economy. He later added that the biggest mistake we must make is the failure to restore price stability.

The Japanese yen sale remains one of the hottest major trades after BoJ Governor Kuroda sent a message at the last policy meeting in June that it was too early to cut stimulus.

The G10’s worst-performing currency this year fell to 137 against the dollar last week, its lowest level since 1998. Analysts at Credit Suisse Group AG had forecast a drop to 138 over the next three months as JPMorgan Chase & Co. looks to the possibility of a move towards the top of the world. 140.00 . Commenting on this, Win Thein, a New York-based forex analyst at Brown Brothers, wrote in a note: “Keeping the BOJ cautious, we continue to believe that the pair will eventually test the August 1998 high near 147.65.” However, the volatility of the Japanese yen is closely related to Treasuries and the demand for the dollar. Peak US rate hike expectations in the coming months may calm some nerves and fears of a recession that could spur a rally in safe haven assets including the yen.

USD/JPY Forecast Today

The general trend of the USD/JPY pair is still bullish, and any selling did not take it out of the trend. This may happen initially by breaching the support level 130.00. As I mentioned before, the bulls will have the opportunity to move towards the historical psychological top 140.00 in the event that the bulls return to breach the resistance 137.00 again as It happened last week. The dollar’s yen gains brought it to its highest in 24 years. Today is a holiday in the US financial markets, and therefore I expect limited movements of the dollar-yen, during which it is affected only by the extent to which investors take risks or not.

Unless the Bank of Japan changes its overall attitude, it’s difficult to imagine that this market will break down with any real significance.

The Canadian dollar rose again on Tuesday as the Japanese yen is simply floundering around the currency markets. With the Bank of Japan doing everything it can to fight interest rates rising, they are essentially buying every bond that they can get their hands on. In fact, the BOJ owns over 50% of all Japanese debt, suggesting that the Japanese yen could enter into some type of negative feedback loop.

The size of the candlestick is reasonably strong, as we have broken above the ¥106 level, and it now looks as if we could go looking to reach the ¥107 level. At this point, a short-term pullback should continue to offer attractive opportunities for those looking to get involved to the upside, so I think at this point, the ¥104 level is your short-term support level, followed by the ¥102 level, where the 50-day EMA is currently sitting and rising, plus an area where we had previously seen both support and resistance.

The ¥102 level is an area that will be crucial for the longer-term health of this market, but even if we were to break down below there, it’s likely that the ¥100 level is even more supportive. If we were to break through that area, it’s likely that we will continue to break down quite significantly. Ultimately, this is a market that has more of a “buy on the dip” mentality than anything else, especially if the crude oil market continues to strengthen. However, if crude oil falls, you may see the CAD/JPY pair fall with it, or perhaps underperform. After all, the Bank of Japan aspect cannot be forgotten. In other words, this pair may rise slower than the USD/JPY pair.

More likely than not, we will probably break out and go much higher, clearing the ¥107 level and reaching to the ¥110 level. The ¥110 level has a certain amount of psychology attached to it, due to the fact that it is a round figure. Nonetheless, when you look at the very long-term charge, it’s really a situation where the ¥110 level is simply but a speed bump along the way to much higher pricing. Unless the Bank of Japan changes its overall attitude, it’s difficult to imagine that this market will break down with any real significance.

I will probably look at this in a day or two as value, but right now it looks like we still have a little bit of drifting to do.

The Canadian dollar fell a bit against the Japanese yen on Wednesday, as the oil markets have also started to correct a bit. Nonetheless, oil should continue to rise over the longer term, so the normal longer-term correlation should come back into the picture. The market is highly sensitive to crude oil as Canada is a major exporter of crude, while the Japanese economy imports 100% of its fuel.

When I look around the world, it’s obvious that there is a lot of concern when it comes to risk appetite, and one would have to assume that the “risk appetite trade” would be buying this pair. However, the Bank of Japan continues to do everything it can to keep interest rates near the 25 basis points area on the 10-year note, so at this point, the Japanese yen will continue to drop in value against most currencies, but no market goes straight up there forever. In fact, a pullback to the box that I have had on this chart for several days makes sense. That would have the market testing the ¥102 level, an area that had been a previous high.

The 50-day EMA is rising toward that same area as well, so I think it does make quite a bit of sense that it all coincides in the same area and we get an opportunity to see buyers jump in. Ultimately, that’s the trade I am looking for, but we will have to see whether or not we get that opportunity. If we do break down below the 50-day EMA, then the next major support level will be found at the psychologically important ¥100 level. Anything below there then starts to threaten the overall trend itself.

That being said, pay attention to the oil market, pay attention to the bond yield differential between the two economies, and of course the overall risk appetite. As long as that’s going to all point toward Canada, then I think it is likely that we will continue the trend, but the occasional pullback from a parabolic move would be expected, just as it would in any other market. I will probably look at this in a day or two as value, but right now it looks like we still have a little bit of drifting to do.