The US dollar rallied slightly against the Japanese yen during the trading session on Tuesday, reaching towards the 111.50 level. I think there is a significant amount of resistance between here and the 112 level, and it’s only a matter of time before we show signs of exhaustion. On those signs of exhaustion, I believe that the market will roll over again, based upon the fact that we have broken through a significant support level. The market probably goes back down to the 111 level, and a breakdown below there should go down to the 110 handle. If we did break above the 112 level, it’s likely that we will continue to go back towards the 114.50 level above.
I believe that the US dollar continues to struggle due to the United States Congress failing to pass tax bills, and of course the possibility of some type of roll over in the stock markets and of course “risk assets.” Likely markets will continue to be very volatile, and that of course works against the value of this pair at times, because the Japanese yen is a safety currency. I think that the 108-level underneath is the longer-term target if we continue to see softness in this pair, because it is the bottom of the longer-term consolidation that the market has been in for some time. The market breaking below the 108 level would be catastrophic. I don’t think that happens though, because eventually the U.S. Congress will have to pass some type of tax bill. Beyond that, we have interest rates rising in the United States which should naturally soften any type of move below in this market, and perhaps offer a bit of a cushion. It really comes down to how levered you are, whether you want to start trying to pick up the US dollar at cheap levels, or if you want to short the market. I personally believe in shorting until we break above the 112 level, or visit the 108 handle.
Written by FX Empire