At this point, we need to start looking at the possibility that the recovery is still trying to get off the ground.
At this point, we need to start looking at the possibility that the recovery is still trying to get off the ground. I do believe at this point it’s likely that we will have to see some type of decision made because quite frankly the Japanese Yen still has the specter of the Bank of Japan forcing its bond yields down. This is printing yen and bringing it into the market so that obviously is a bad look for the currency. I do think that given enough time we will see that come back into the forefront.
Currently, it’s all about all the cheap and free money that Wall Street is still expecting to come about. After all, we have an entire generation of traders that have made a nice living for the last 14 years based upon cheap money, and now they have no idea how to react. The idea is that they are going to “force the Fed” into doing what they wanted to. In the past, this trick has worked but right now it looks as if the Federal Reserve is not willing to buckle quite yet. Inflation still rages in the United States, and therefore it’s difficult to get overly bullish on risk appetite over the longer term.
Yields have dropped across the world, and that has alleviated some of the pressure on the Bank of Japan, which is shown on this chart. However, as soon as is yields pick back up, this is a pair that will more likely than not continue to go much higher. Because of this, you need to keep an eye on the 10-year note, and of course the US dollar itself. On the other hand, if the Federal Reserve blanks and finally gives Wall Street what it wants, this pair is going to absolutely implode to the downside.
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