• The USD/ZAR has gone back and forth during the trading session on Wednesday as it looks like we are running out of momentum.
• The US dollar has been straight up in the air for some time, and now we have stalled at the 17 Rand level.
• The 17 Rand level has been important previously, so it’s not a huge surprise to see that we have stalled here.

Furthermore, it looks like the markets are paying close attention to the Jackson Hole Symposium, meaning that the US dollar might be a bit slow over the next 24 hours as traders are trying to figure out whether or not Jerome Powell is going to remain hawkish. Keep in mind that this pair will rise in a “risk off” type of environment, but at this point, it’s likely that we would need to see Jerome Powell sound extraordinarily hawkish. He very well could, and that could send this market to fresh, new highs, as the US dollar will be like a wrecking ball against most currencies, especially emerging-market ones.

Rand Could Be Hindered By Interest Rates

On a pullback from here, I think there is plenty of support underneath, and therefore it’s probably only a matter of time before we see this market turned back around. This  is a market that I think will see support at the 16.50 Rand level, not only due to the fact that there’s a certain amount of psychology attached to the “midcentury mark”, but also the 50 Day EMA. After that, then the 16 Rand level will offer support based upon the large, round, psychologically significant figure and the 200 Day EMA.

It’s very likely that higher interest rates will continue to punish emerging-market currencies and economies around the world, so I look at any pullback as a potential buying opportunity. The 200-Day EMA would have to be broken below, and of course; we would have to see general US dollar weakness in order to see an opportunity to start shorting against the Rand. Keep in mind that the South African Rand is also highly levered to the commodities markets, so pay close attention to them as well. This could lead to a bit of a “death spiral” against the South African Rand because higher interest rates going forward will slow down economic demand for those commodities.

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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.

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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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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.

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If Wall Street finally listens to the Federal Reserve and believes what they are saying when it comes to monetary policy, we will more likely than not see this pair go much higher.

• The USD rallied a bit against the Japanese yen on Tuesday as we see quite a bit of upward pressure longer-term.
• Ultimately, it’s worth noting that the ¥131 level has been massive support from before, and the fact that the USD/JPY currency pair has bounced from there recently suggests that the uptrend is very much intact.

Watch the 10-Year Yield

You should always keep an eye on the 10-year yield in the United States, as it could give you a bit of a “heads up” as to where we are going next. This is because the Bank of Japan continues to buy unlimited bonds, essentially printing unlimited yen. In that situation, traders are likely to continue seeing reasons to push this market higher. The yield differential between the 2 currencies is astronomical and more likely than not going to continue to push this pair higher.

However, if we start to see yields drop in general, then it’s likely that we will see the Japanese yen strengthen a bit, due to the fact that they will not have to print as much currency. At this point, it’s difficult to imagine a scenario where we break away from this correlation, especially as there are so many people paying close attention to the situation with central banks around the world and whether or not the Federal Reserve is going to have to tighten much further than Wall Street is willing to admit.

That being said, if Wall Street finally listens to the Federal Reserve and believes what they are saying when it comes to monetary policy, we will more likely than not see this pair go much higher. Granted, some people are already calling this a bearish black, but I think we have a way to go before you can make that argument. If we were to break down below the ¥131 level, we could go looking to the ¥127 level. The ¥127 level is where I defined the trend as changing, so if we were to break it down below there, then we may have to reevaluate the entire trend. Until then, I suspect that this is a market that continues to be a “buy on the dips” situation, just as it has been for several months. The €140 level above is the price, so we will see whether or not this market can get there.

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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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I suspect that by the time we are done with the Wednesday session, we may have a bit more clarity.

• The USD/JPY currency pair continues to hang around the 50-Day EMA as we are going back and forth around the ¥135 level.
• If we can break above the high of the Monday candlestick, then it’s possible that the entire uptrend can continue to go higher.
• We have to wait on the CPI numbers coming out on Wednesday to get a read on what the Federal Reserve may do.

The market breaking above the top of the candlestick for the Monday session suggests that traders are starting to think that the Federal Reserve is going to continue to be extraordinarily tight with monetary policy as they have been trying to tell everyone. However, if the market were to break down below the bottom of the candlestick, then it’s likely that we will go lower to find support underneath. At that point, the ¥132 area should be a significant area of support that a lot of people would be paying close attention to.

Interest Rate Differential Major Factor

Ultimately, this is a market that is going to continue to be very noisy and based upon the interest rate differential between Japan and the United States, as the Bank of Japan has been buying bonds in order to keep the 10-year rate in Japan down to the 0.25% level. When they have to buy more bonds, that’s the same thing as printing more yen. When other interest rates around the world continue to rise, the Bank of Japan will have to put in some work and therefore print more currency.

On the other side, you have the Federal Reserve which is doing everything can to fight inflation and tighten monetary policy. This has set up the perfect storm for this pair, and that’s how we are trading right now. The market should continue to see plenty of momentum to the upside over the longer term though, unless CPI starts to melt down because then it suggests that the Federal Reserve may not have to tighten monetary policy as much as previously thought. In that scenario, the market would fall apart. This is a market that looks like we are trying to figure out where the next move goes, and where the momentum comes from. I suspect that by the time we are done with the Wednesday session, we may have a bit more clarity.

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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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