The US dollar has rallied quite nicely during the trading session on Tuesday to break well above the 158 yen level. At this point, the “carry trade” is still alive and well.
The US dollar has rallied quite nicely during the trading session on Tuesday to break well above the 158 yen level. In fact, as I write the article, we are now above the 159 yen level. If we get some type of short-term pullback, then that opens up the possibility of buying value. The 158 yen level is an area that I think is going to be a short-term support level, as it was previously resistance.
Market Outlook and Potential Intervention
The 160 yen level is an area that I think could cause some issues, as the Bank of Japan had previously intervened in the market, as the market got a little overstretched previously. That being said, if we could break above the 160 yen level, then we could continue to go higher. As long as we stay above the 155 yen level, I think we have a good chance that anytime we pull back, you should be a buyer.
If we were to break down below the 155 yen level, then it’s open up to a move down to the 200-day EMA, but I don’t expect to see that happen. After all, this is a positive swap situation as the market is going to pay you at the end of every day, and therefore, the carry trade is still a very real thing. I believe that the Bank of Japan is essentially stuck with loose monetary policy, while the Federal Reserve could cut rates. The reality is they cut rates once or twice this year, and that still means that the US dollar should offer more value than the Japanese yen, all things being equal.
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Christopher Lewis has been trading Forex and has over 20 years experience in financial markets. Chris has been a regular contributor to Daily Forex since the early days of the site. He writes about Forex for several online publications, including FX Empire, Investing.com, and his own site, aptly named The Trader Guy. Chris favours technical analysis methods to identify his trades and likes to trade equity indices and commodities as well as Forex. He favours a longer-term trading style, and his trades often last for days or weeks.
