US Dollar Continues to Flex Its Muscles
The US dollar has initially fallen during the course of the trading week, only to turn around and form a bit of a hammer. Are we about to see a breakout? It certainly looks as if the market is going to try to do that. The Federal Reserve suddenly becoming quite a bit more hawkish certainly will help as well, so now all eyes are focused on the highs over the last several weeks. Ultimately, this is a market that I think is going to try to get to the ¥116 level.
USD/JPY Video 07.02.22
If we were to break down below the weekly candlestick, we probably go looking towards the ¥113.50 level, followed by the ¥112.50 level. That is the absolute bottom of the uptrend and therefore we need to hold that if we are to continue seeing bullish pressure. With the Federal Reserve tightening and the Bank of Japan doing its usual dovish behavior, it is hard to imagine that this market would do anything other than go higher over the longer term.
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The market does tend to pay quite a bit of attention to the interest rate differential between the two currencies, which of course is favoring the United States and expanding. As long as that is going to be the case, I think there is a little bit of a natural bid to this market. That being said, if we were to break down below that ¥112.50 level, I think it would probably be a run towards safety and the Japanese yen overall. If things start to fall apart, then we could see a situation where the yen suddenly strengthens, but right now it does not look likely.
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