The US dollar fell slightly against the Japanese yen, reaching down towards the 113.50 level. The market looks very well supported in this region, but I think that the market is going to continue to be very volatile. In the short run, I anticipate that the market will probably find buyers in this vicinity, perhaps try to reach back towards the 114.30 level. Alternately, if we do break down below the 113 handle, then I think the next major support level is closer to the 112 level. I believe that selling is all but impossible, so even if we break down, I will be on the sidelines and wait for buying opportunities below. In fact, if we were to pull back towards the 112 level, I would find that much more palatable, because it gives me a bit value in the US dollar. I believe that ultimately, we will break out to the upside, but it is probably going to take a significant amount of effort, as the 114.50 level has been the top of consolidation for months. If we were to break above the 115 handle, the market could be free to go much higher, perhaps towards the 118 handle after that.
I recognize that one of the main drivers for this pair is going to be the Federal Reserve looking a raise interest rates higher, and of course the interest rate differential and the 10 year note market. The United States continues to offer more in the way of interest rates, so therefore we should continue to see bullish pressure. Pay attention to the ZN futures chart, as if it sells off, it means higher interest rates in America. That in turn tends to send this pair higher. The correlation of the longer-term has held up quite nicely over the last several years.
Written by FX Empire