USD/JPY Forecast – US Dollar Continues to See Support Underneath

US Dollar vs Japanese Yen Technical Analysis

The U.S. Dollar has pulled back slightly during the trading session here on Thursday when the Americans were away for Independence Day. That being said, I don’t read too much into this candlestick because we also have Non-farm Payroll on Friday, which of course has a major amount of influence on what happens in the currency markets. We are a little overextended at this point, so I do think a pullback is probably necessary. And that pullback will more likely than not be a situation where we have to pay attention to the 160 yen level.

The 160 yen level was where the Bank of Japan previously has been intervening and therefore it should have a certain amount of market memory now that we’ve broken above it. That being said, when you look at this chart, it’s easy to see that we’re overbought, at least for the short term. So, a little bit of a surprise during the trading session on Friday might be in store and that is actually a good thing.

I’m looking to buy dips. I have no interest in shorting this pair because the interest rate differential continues to pay you quite handsomely at the end of every session. I don’t care if the Federal Reserve does cut rates once later this year. It is still a massive interest rate differential and unless the Federal Reserve starts cutting aggressively, there’s not a whole lot that the Japanese yen offers you. The Bank of Japan certainly cannot cut rates anytime soon and with the massive amount of debt in that country, I don’t think they’re ever going to be able to raise rates. So, with all of this being said, I think you just continue to see more of the same going forward.

For a look at all of today’s economic events, check out our economic calendar.