- The USD/JPY gained early Monday amid optimism over potential US-China trade progress, but faced resistance near ¥153.
- With both central banks’ policy decisions looming, the interest rate gap still favors the dollar, suggesting pullbacks may present buying opportunities.
The US dollar rallied against the Japanese yen during early trading on Monday, which makes sense considering that, in theory, a framework has been agreed upon by the Chinese and American delegations to potentially open up a trade agreement between the two countries and bring global trade back into order.
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That being said, it's worth noting that the pair gave back a bit of the gains near the ¥135 level, an area that has been somewhat resistant previously. The fact that the market is still hesitating at the ¥153 level raises questions about whether we can continue to move higher easily, and I don’t think that will be the case. More likely than not, a little bit of a pullback could open up the possibility for value hunters.
One thing to keep in mind is that both the Federal Reserve and the Bank of Japan have interest rate decisions this week, which will obviously have a major influence on where we go next. The Japanese are more likely than not going to be forced to remain fairly loose with monetary policy, and the United States is expected to follow suit.
However, the Fed has been a little lackadaisical in its messaging, and many are starting to question whether there will be enough interest rate cuts to satisfy the market.
Ultimately, the interest rate differential will continue to favor the US dollar. If we can break above the ¥153 level with any sustained momentum, it could open up a move toward ¥155. Pullbacks at this point should find plenty of support all the way down to the ¥150 level, and I’m looking for a pullback and bounce to start taking advantage of to pick up cheap US dollars.
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