The US dollar continues to see interest rates work in its favor, as we are looking to see a bit of a “carry trade” going forward in this pair.
The U.S. dollar has been all over the place against the Japanese yen during the early part of the trading session on Monday, as traders get back to work after the weekend, which saw President Donald Trump refuse the Iranian peace offer and, of course, play havoc with the bond markets.
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Speaking of the bond markets, interest rates in America do continue to climb, and that is a major driver of the U.S. dollar in general. The Bank of Japan has been threatening intervention again, but quite frankly, they can only do it so many times before the market completely ignores them. We are seeing the market test that whole theory.
The 200-day EMA sits right here as well, and that in and of itself could be a major driver of what happens next. If the market were to break well above the ¥158 level, then it's possible that the market could go looking to the ¥160 level, but that may take some time. A short-term pullback at this point in time opens up the possibility of a drop down to the ¥155 level. That's an area that has been important as well, and as a result, the market may see a little bit of support there if we do drop.
Interest rates matter
The interest rate differential between the United States and Japan is still wide enough to drive a truck through. Right now, I still like the whole idea of the carry trade. I do recognize that we have not made a higher swing high quite yet, but it's also worth noting that the market has been manipulated by central banks. This isn't natural, free-flowing transactions going on. As a result, we will continue to see a certain amount of interest to the upside here.
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