USD/JPY Forecast – US Dollar Continues to Test Resistance

US Dollar vs Japanese Yen Technical Analysis

The U.S. dollar initially tried to rally during the early hours on Tuesday as we continue to see a lot of noise right around the 148.50 yen level, which also coincides with the previous uptrend line that we had broken. Over the last several days, we’ve seen the market reach above the 147.50 yen level only to sell off. Early on Tuesday, it looks like we may see some of the same action in this pair as traders are trying to sort out what to do with the whole idea of the carry trade unwinding.

We will have PPI numbers coming out, and that could have a certain amount of influence on the US dollar, but really at the end of the day, I think a lot of this comes down to the idea of whether or not the Japanese central bank were warmly aimed tight, and of course, risk appetite. In a risk-off environment, the Japanese yen is one of the few currencies that tends to outperform the US dollar.

However, I think sooner or later, we will build a base that we can launch from and eclipse the most recent highs. The Bank of Japan has done a lot of damage to this pair via interventions and its monetary policy, but at the same time, it can only tighten so much without destroying the Japanese economy in the process due to the massive indebtedness.

The Japanese are the most indebted nation in the world when it comes to large economies and that’s saying something considering we are comparing it to the United States here. So, with that, in the longer term I’m looking for a buying opportunity. In the short term we very well could go sideways. If we were to break above the 150 yen level, then I think it’s somewhat of an all-clear signal. In the short term though I expect to see a lot of sideways chop and volatility right around this area.

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