USD/JPY Forecast
The concern at this point is whether the market will continue to see interest rates climb, forcing the Bank of Japan to create more yen.
- The USD/JPY rose marginally during Wednesday's trading session as we continue to try to establish a base against the Japanese yen.
- The Consumer Price Index figures are due out on Thursday, and they will have a significant impact on what the bond market believes the Federal Reserve will do.
- As the Bank of Japan has instituted yield curve management, this will have a significant impact on what occurs in this market.
- This is, of course, a reference to the Bank of Japan's declaration that it is willing to buy "infinite bonds" to keep the 10-year interest rate below 50 basis points.
However, they began this program with a yield curve control of 25 basis points on the same 10-year interest rate, so they have already caved a little. This is one of the factors that contributed to the Japanese yen's annihilation last year. The concern at this point is whether the market will continue to see interest rates climb, forcing the Bank of Japan to create more yen.
The 200-Day EMA is an indicator that many people pay close attention to. I suppose you could make an argument at this time that the 50-Day EMA contracting and dropping near the 200-Day EMA has some investors thinking about longer-term selling.
If global interest rates remain stable, the Japanese may be granted some relief in this situation. I believe we are in a scenario where a difficult couple of days are more likely than not. After all, the Consumer Price Index is due out on Thursday; if it comes in hotter than expected, this market might swiftly go into the 200-Day EMA above.
On the downside, the 130 level appears to be the core of substantial support, so at this time, I believe we are attempting to determine whether the market has retreated sufficiently to make the long side appealing again. The following few weeks should provide some clarity, but the next few days will most likely be more chop than anything else.