There’s a lot happening around the 200-day EMA as the US dollar attempts to make a comeback.
USD/JPY
Once again, we’re seeing fluctuations in the US dollar against the Japanese yen. Market participants seem to be anticipating the core PCE inflation data due later this week, but it appears that selling pressure is beginning to let up. If you look at Monday’s trading candle and compare it to Tuesday’s, you can see some follow-through.
Firstly, there’s been a significant increase in short positions on the US dollar, reaching levels not seen in about 14 and a half years. This indicates that perhaps traders might be overdoing it a bit. Additionally, although the Bank of Japan seems to suggest a willingness to normalize interest rates, the reality is that Japan’s economy could take a severe hit if rates were raised, especially given its poor debt-to-GDP ratio.
Long-Term Perspective
Japan’s demographic challenges don’t really allow for much of an increase in rates. The market has reacted several times to the possibility of change, only to find out nothing really alters. If you look at the Japanese yen over the long term, it reached a major peak around 160 yen back in 1990, and prior to that, in 1986.
Should we break past the 162 yen level, the Japanese yen could be in serious trouble. I think the Bank of Japan is doing everything possible to prevent that scenario, but they might ultimately fail. Personally, I tend to buy on dips. I believe a carry trade looks favorable right now, and it seems likely the Japanese yen will face challenges later this year, particularly if the Federal Reserve doesn’t reduce rates as much as some traders hope.
Potential Signal: I am considering buying when this pair closes above 153.50, setting a stop at 152.50, and targeting above 156.50.
If you’re interested in USD/JPY trading, I’m looking into various Japanese forex brokers.
Christopher Lewis has been involved in foreign exchange trading for over two decades. He has contributed regularly to financial analysis platforms and shares insights on various online publications, focusing on forex as well as stock indices and commodities. He leans toward a long-term trading strategy, with positions often maintained for several days or weeks.
