US Dollar vs Japanese Yen Technical Analysis
The US Dollar rallied initially in the early hours on Tuesday, only to turn around and fall again. The 142 yen level underneath is a major support level and I think at this point in time, it’s worth noting that we also have the intersection of an uptrend line that a lot of people are paying attention to. I think at this point in time, we are in the midst of perhaps trying to form some type of double bottom. At this point, the double bottom of course is a sign that perhaps things are starting to turn around. We recognize, of course, that the Federal Reserve is likely to cut rates later this month.
But the question is how much do they cut? If they only cut this month and maybe one other time, the interest rate differential between the US dollar and the Japanese yen remains pretty much intact. Yes, it’s smaller, but it’s still enough that it will attract a certain amount of inflows. If we can turn around and break above the 145 yen pair higher, perhaps reaching the 149 yen level.
Furthermore, we have to keep in mind that both CPI and PPI come out later this week, so that will have a bit of an influence. And beyond that, we also have to keep a risk appetite in the back of our mind. If we were to close on a daily close below the 141 yen level, then I think the bottom falls out and we probably drop quite significantly.
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This article was originally posted on FX Empire