USD Finds Short-Term Bottom Against JPY

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.

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