The Federal Reserve is very tight with its monetary policy and is running its balance sheet down on top of everything else.
On the other side of the Pacific Ocean, we have the Federal Reserve. The Federal Reserve is very tight with its monetary policy and is running its balance sheet down on top of everything else. In other words, money in America is getting tighter, so therefore it should continue to drive the value of the US dollar higher, thereby making this a bit of a perfect setup as it is a complete divergence of the 2 central banks.
Granted, the Bank of Japan did come in and start buying again to push the value back down in despair, but it’s also worth noting that they use 15% of their reserves, which is a huge move. They can’t do that too many times, so I think what’s going to happen is that we will eventually break out to the upside, if central bank policy remains the same. If that is going to be the case, then this market will eventually break out. However, the breakout is not something that I fear, just it’s going to have to be gradual, and not sudden. If the appreciation of the dollar against the Japanese yen is orderly, more likely than not the BoJ won’t get involved. On the other hand, if we do breakout to the upside and really start to scream higher, then it’s possible that the BoJ starts intervening in the Forex markets again.
My favorite way to play this market is to buy dips, and approach from short-term timeframe. The ?142.50 level should be supported, just as the ?140 level should be, especially now that the 50-Day EMA is sitting right around the same area. Ultimately, this is a market that will remain volatile, but I still favor the upside.