US Dollar vs Japanese Yen Technical Analysis
The US dollar has rallied again during the early hours on Friday, as we continue to see the interest rate differential between the greenback and the Japanese yen widen. And of course, people were not interested in trying to pay to be in a position, which is essentially what you do when you short this pair.
The Bank of Japan did recently do a bit of intervention, but ultimately, it’s not a trend that they can turn around considering that the interest rate differential is so large. And of course, more importantly, the Japanese debt level is astronomical. It’s actually worse than the Americans and that is saying something. So, with that being the case, the Bank of Japan can’t raise rates very far.
And with that being the case, you get a weaker yen. There are just two new ways of it. With the Federal Reserve likely to stay tight longer than people had anticipated recently, this does set up a perfect bullish run in this pair. And despite the fact that there could be a little bit of intervention here and there, it’s not going to change the overall outlook of this pair.
Not only do I think that we go higher from here, I think we break above the 160 yen level and continue much higher. It would not shock me at all to see the US dollar trade as high as 200 yen sometime in the next year or two. The Federal Reserve would have to become very aggressive with its rate cuts to turn things around. And as long as there’s inflation, they can’t do that. Will they cut between now and two years? Probably, but we’ll have to see how much. All things being equal, this is a market that I think goes much higher regardless.
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