The US dollar rallied against the Japanese yen to kick off the session on Thursday, but we have given back quite a bit of those gains.
At this point, the market continues to see a lot of volatility and that makes sense as traders are trying to figure out where things are going to play out as far as risk appetite is concerned and of course, bond markets.
The Bank of Japan recently intervened in the USD/JPY pair and that has traders a little bit hesitant to get too aggressive to the upside. That is probably closer to the 160-yen level though, so we're not quite there yet, and I'm not overly concerned.
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Interest Rate Differentials and Bank of Japan Intervention
If we pull back from here, then the market ends up looking at the 158-yen level being backed up by the 50-day EMA as a potential floor and I think that will play out that way. Keep in mind that the interest rates still favor the United States quite heavily and they will for quite some time, so you get paid to get long of this market and hold on to dollars.
That reason alone for me is reason to simply go long and not short whatsoever. That doesn't mean that I'm always jumping in, but I do like buying dips.
If we can break above the 160.50-yen level, then I think there's a real chance where the market really takes off to the upside and becomes more of a buy and hold scenario. With this being said, I think you've got a lot of volatility and noisiness ahead of you, but I also recognize that the US dollar has been a bit like a freight train against the Japanese yen for several months now. And despite the fact that we did have some intervention, there is only so much the Bank of Japan can do to fight this trend.
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