The US dollar did very little during the trading session on Monday, as we are sitting just below the ¥104 level. This is a large, round, psychologically significant figure that has of course attract a lot of attention. Because of the fact that the market has shown itself to be so resilient, I do believe that eventually we will continue the overall downtrend. Having said that, the US dollar is oversold against almost everything, so I am also allowing for the possibility of a move towards the ¥105 level. It is not until we break above there that I believe the downtrend is over with.
USD/JPY Video 19.01.21
You can clearly see that last week there was a certain amount of support right around the ¥103.50 level, as quite frankly the interest rate differential between the two bond markets are starting to favor the United States but the difference is ever so slight at best. With that being the case, bond yields are not quite enough to drive this pair higher. Keep in mind that this pair is also highly sensitive to employment and risk appetite in general, which is a bit all over the place at this point in time.
If we were to break down below the ¥103.50 level, I think at that juncture we would go looking towards the ¥102.75 level initially, which was the most recent low. Breaking down below their opens up the possibility of a move towards the ¥101 level. In the meantime, I would expect a lot of choppy trading, which is essentially how this market has been trading for a good year or more. I still favor the downside, but I recognize that this trend has a momentum problem.
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