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.

Ready to trade our daily Forex analysis? We’ve made a list of the best Forex brokers worth trading with.

We have no interest in trying to short this market because it is far too strong.

• The USD/JPY rallied a bit during the trading session again against the Japanese yen on Monday, as we continue to see a lot of upward momentum.
• The US dollar has been very strong for some time, and Monday was more of the same. 
• We did break above the shooting star from a couple of weeks ago at this level, so it does suggest that we have further to go at this point.

If we pull back from here, it’s likely that we only get an opportunity to start buying this market yet again. It’s also worth noting that the market has recently formed a “W pattern”, which is a bullish sign, and therefore it’s likely that we could continue to go much higher.

Underneath, we have the 50-Day EMA rising, and therefore it’s likely that we will continue to see that offer a little bit of dynamic support. I do think that given enough time the US dollar will reach the ¥140 level, and it’s probably worth noting that the previously mentioned “W pattern” does measure for a move to that level. It’s also worth noting that there have been several green candlesticks in a row, and I think that it is probably only a matter of time before we get a pullback, but that pullback should be thought of as value. I have no interest in trying to short this market because it is far too strong.

Will things start to get ugly?

The “floor in the market” is probably close to the ¥132 level, which is the bottom of that “W pattern”, so a breakdown below that level would attract a certain amount of attention. In that scenario, things could get somewhat ugly, opening up a drop to the 200 Day EMA. The 200 Day EMA sits just below the ¥128 level, so that should be something to keep an eye on as well, as the market has seen so much in the way of reaction to that area previously. If we break it down below there, then it’s likely that the market goes down to the ¥120 level. We are in a longer-term uptrend, and therefore you need to keep that in the back of your mind as we have seen so much in the way of momentum.

Ready to trade our daily Forex analysis? We’ve made a list of the best Forex brokers worth trading with.

The trend is very strong, and I think it will continue to be so as we have seen so much in the way of momentum.

• The US dollar has broken to a fresh, new high against the Japanese yen during trading on Thursday, as the uptrend looks to be continuing.
• We just completed a “W pattern”, which could send this market looking to much higher levels.
• The measured move is for the ¥140 level to be targeted, so we will have to wait and see whether or not that actually occurs.

Strong USD/JPY Uptrend

Regardless, the USD/JPY currency pair has been in an uptrend for some time, so there’s no real point in trying to fight it. The trend is very strong, and I think it will continue to be so as we have seen so much in the way of momentum. The market might have a big fight ahead of it in this general vicinity, but I just don’t see anything that will keep this market from rising over the longer term. This will be especially true if the interest rate differential between the United States and Japan continues to widen, I think given enough time, we probably have a scenario where the markets are going to eventually break out.

Keep in mind that the Federal Reserve has to do something about inflation, and therefore interest rates will have to continue to climb. However, the market is currently fighting the Fed, and it’s also worth noting that the Jackson Hole Symposium is happening next week, so it does make quite a bit of sense that the central bankers around the world will continue to try to talk the markets down because quite frankly they are working against what the central banks are trying to accomplish. Because of this, I would anticipate that interest-rate markets will probably be all over the place next week.

With this being the case, keep in mind that it is going to be noisy and perhaps even dangerous overall, therefore you need to be cautious about your position size. However, we have clearly made a statement on Thursday that the US dollar is going to continue to work against the yen. If we do turn around and break down below the ¥132 level, then it’s possible that we could go down to the ¥127 level. That is where we currently see the 200 Day EMA, so it makes for a nice target and a potential floor.

Ready to trade our daily Forex forecast? Here’s a list of some of the best Forex trading platforms to check out.

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.

Ready to trade our Forex daily forecast? We’ve shortlisted the best Forex trading brokers in the industry for you.

This has been a nice little pullback and I think a lot of traders will look at the US dollar as being relatively “cheap”, at least in the short term.

• The US dollar turned around against the Japanese yen on Tuesday as we had broken below the ¥132.50 level.
• The ¥132.50 level is an area that has previously been resistant and supported, so a certain amount of market memory comes into the picture.
• The fact that we have turned around so violently is a good sign, and I think we are going to continue to see the uptrend respected, as long as we don’t get some type of major selloff in the US dollar overall.

Keep an Eye on Bonds

Yields had been crushed for a while, and that has had a lot to do with what happened with the Japanese yen over the last couple of days. After all, a lot of traders started to recognize that the Bank of Japan may not have to be as aggressive in buying bonds as it had been previously, to keep yields down. If that’s going to be the case, then they may not have to “print” as many yen as thought. However, as you’ll start to rise again, the Japanese will have to start buying more bonds. So, there you have it, this is where we are right now, watching the bond markets trying to figure out where we are going next.

This pair tends to be particularly sensitive to the 10-year yield, which of course shot straight up in the air during the session. Because of this, we started to see the Japanese yen give up some of its gains as the central bank will have to get aggressive again if this ends up being a bit of a trend. Yields have quite a way to go because we are nowhere near the neutral rate in the United States.

Ultimately, I think that the uptrend needed some type of pullback, and we have had that. Whether or not this is it could be a completely different question, but right now this has been a nice little pullback and I think a lot of traders will look at the US dollar as being relatively “cheap”, at least in the short term against the yen, maybe some other currencies. In fact, we saw the US dollar pick up momentum against the euro and the pound at the same time, showing that this is a worldwide move.

Ready to trade our daily Forex forecast? Here’s a list of some of the best Forex trading platforms to check out.

Japanese officials’ ignoring of the continuous collapse of the Japanese yen exchange rate, along with the US Federal Reserve’s continued intention to raise US interest rates strongly during 2022, are still important factors for the continuation of the strong upward trend of the US dollar against the Japanese yen pair, with gains to its highest in 24 years. Its recent gains brought it to the resistance level of 136.72 and it settles around the level of 135.48 at the time of writing the analysis.

Amid the US central bank’s leadership of global central banks to raise interest rates to contain historical inflation. Bank Chairman Jerome Powell reiterated the comments he already made at the press conference after the June decision to raise the US interest rate by a massive 0.75%, raising it to 1.75%, although its impact was more pronounced on the stock and bond markets last week.

The US dollar’s declines last week were in contrast to its usual reaction to market concerns about the outlook for the global economy and many analysts still expect it will benefit from any further deterioration. Accordingly, the could rise to 106 pips this week. “The increased risks of a global recession, or at least a sharp slowdown, support further gains in the US dollar,” says Joseph Caporso, an analyst at the Commonwealth Bank of Australia.

All this leaves much to be determined this week by a flurry of important economic numbers from the US in the coming days, which includes the May edition of the Fed’s favorite inflation gauge; Core personal consumption expenditures price index. The consensus expects the core PCE price index to rise 0.4% last month, up from 0.3% previously, but from 4.9% to 4.8% year over year. Commenting on this, Kevin Cummins, chief US economist at Natwest Markets, says: “Not all of the strength in core CPI (such as airfare and auto insurance) will be fed into the core PCE deflation.”

We expect core PCE deflator to advance 0.4% (0.383% unrestricted), stronger than the 0.3% streak of gains in the previous three months but still less than the 0.6% gain in core CPI. On an annualized basis, our realization of our forecast would pull the core PCE inflation rate from 4.9% in April to 4.7% in May as the 0.6% rise from last May is off the mark.”

USD/JPY Analysis:

The general trend of the dollar yen currency pair is still bullish. Despite the technical indicators reaching strong overbought levels after the recent record gains, the continuation of the above mentioned factors guarantees the currency pair to continue to test ascending level. The closest to it is currently 136.20 and 137.00, respectively, and stability above the last level will strengthen expectations with a stronger upward move, psychological resistance 140.00 may be the ideal destination for the bulls.

On the downside, there will be no first break of the trend without moving below the 130.00 level. The USD/JPY currency pair will be affected today by the extent to which investors take risks or not, in addition to the announcement of the US consumer confidence reading.

The US dollar has rallied a bit against the Japanese yen during the trading session on Monday, but it should be noted that it was Juneteenth in the United States, so liquidity may have been a bit of an issue. Regardless, we have seen another attempt to break above the ¥135.50 level, and eventually, it looks as if we will do so.

It’s worth noting that the Friday candlestick was extraordinarily bullish, and of course, the Bank of Japan decided to reiterate its pledge to drive interest rates down. As long that’s going to be the case, it remains the only major central bank involved in quantitative easing, meaning that the Japanese yen is going to get absolutely eviscerated. You can see this in multiple currency pairs, not just this one. However, it’s worth noting that the US dollar is the benchmark on which all currencies are measured, so this shows you that not only will this pair continue to look strong, but so will many other ones such as the GBP/JPY, CHF/JPY, and so on.

The ¥132 level should now offer a significant amount of support, so I think pullbacks of that area will be looked at as value. In fact, that’s how I think most people will be looking at this currency pair, one that you should be buying on the dips. The market breaking above the ¥135.50 level opens up the possibility of another rally to reach the ¥137.50 level. After that, the 140 and level is almost certainly going to be a potential destination.

On the downside, we would need to break through the ¥126 level before sellers would start to convince me that they are taking over. The only thing that tells me when this is possible will be when the Bank of Japan finally starts to let rates rise, or the Federal Reserve pivots to a different monetary policy regime. Until that changes, I just do not see a situation where we have a significant selloff, even if we do have a major “risk-off move” in the financial markets. (It should be said that if we do get one of those moves, other pairs such as GBP/JPY might get pounded.) “Steady as she goes” will more likely than not be the way this market behaves over the next several months.

Expect a lot of choppiness on Friday.

The US dollar initially fell during the trading session on Thursday but found buyers underneath to show signs of life yet again. Ultimately, this is a market that I think will have plenty of buyers regardless, as the Bank of Japan continues to work against yields in the bond market, meaning that they are essentially “printing Japanese yen.” If that’s going to be the case, then it makes quite a bit of sense that we would see other currencies benefit.

Furthermore, the Federal Reserve is much tighter than the Bank of Japan and is considered to be one of the most hotly central banks in the world. Because of this, it makes sense that the US dollar would continue to gain against the Japanese yen, and it is also worth noting that the US dollar is the currency in which most people measure strength or weakness, and therefore it does make quite a bit a sense that we would see this pair be the first one that people focus on.

However, if we continue to see the US dollar soften against other currencies, you may be better off buying something like the AUD/JPY or even the NZD/JPY as commodity markets have been so strong. Either way, this is a market that I have no interest in shorting, and I think that if we get a pullback during the Friday session, it’s very likely that the markets will look at that as a potential buying opportunity. The ¥126.50 level is an area that I think offers a significant amount of support, just down to the ¥131 level above offers resistance. Nonetheless, we are in a major uptrend, and therefore it makes sense that we would see plenty of momentum still in this market. I think that given enough time, we will probably have plenty of real estate to capture, over the longer-term more than anything else. I don’t have any interest in shorting, at least not until we take out the ¥125 level underneath, something that does not look very likely to happen anytime soon. Expect a lot of choppiness on Friday, as is pair is highly sensitive to the jobs report, but at the end of the day I would anticipate that any selloff attracts buyers as there have been so many recently.