One of the biggest trades of 2022 was to short the Japanese yen. This was mainly due to the fact that the central banks around the world started on a massive tightening cycle, while the Bank of Japan still insisted on keeping interest rates on the 10 year JGB bond down to 0.25%, which made it by far the loosest central bank in the world. Recently, the Bank of Japan decided to let that rate increased to 50 basis points, and since then we have seen the Japanese yen strengthened against the US dollar, as well as many other currencies around the world.
Having said that, the interest rate markets around the world are a moving market, and we have seen rates spike a bit over the last several weeks. This corresponds with the Japanese having to keep those rates down, which is done through a mechanism called quantitative easing. In short, they print more currency to buy more bonds. As they buy those bonds, it drives down the yield offered. As they print more money, that money becomes worth less and less.
What action did USD take?
Meanwhile, across the Pacific Ocean, we have the Federal Reserve and its tightening policy becoming increasingly aggressive, in ways that are much more nuance than simply the interest rate markets. Because of this, we have seen the US dollar gained a bit as of late, and it is probably worth noting that we have a bit of technical USD/JPY analysis coming into the picture as well.
Recently, the US dollar has made a bit of a double bottom near the 61.8% Fibonacci level, which coincides with roughly ¥128. Since then, we have hit the 50-Day EMA 2 times in a row, and it now looks like we may try to break through it and go looking to the 200-Day EMA, which is at roughly ¥133. A break above that would technically be a shift to another bullish market. On the other hand, we may simply not have enough momentum quite yet, and may continue to consolidate between ¥128 and ¥132.50. Watch for an impulsive candlestick on a break out to be your clue.
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