USD/JPY Forecast – US Dollar Looking to Build Momentum

US Dollar vs Japanese Yen Technical Analysis

You can see that the dollar is rather quiet against the Japanese yen in early trading on Tuesday, as we continue to hover right around the crucial 150 yen level. This is an area that of course has a certain amount of psychology attached to it, but it is the 149.80 yen level underneath that I think is the true support for whatever reason, since the trading markets decided that this was a significant area of resistance multiple times in the past. At this point, you still get paid to hang on to this currency pair as the interest rate differential is still rather wide in favor of the US dollar. And of course, the Federal Reserve is looking to push back interest rate cuts.

Even when they do cut, the interest rate differential still will favor the Fed quite drastically. As long as that’s the case, I suspect that this pair does go higher over the longer term. And at this point, I think it’s more about the Japanese yen than anything else. After all, the Japanese yen is a currency that has a central bank behind it that just cannot raise rates due to the nation’s debt load.

If we do pull back, the 50-day EMA sits right around 147.50 yen, and I think that is a support level as well. Underneath there, then you have the crucial 145 yen level where the 200-day EMA currently resides. On the upside, if we can break out above the 152 yen level, then it becomes more or less a buy and hold situation, which I think eventually does happen.

In that scenario, 155 yen would be the initial target, perhaps followed by 160. However, I would think that we need some kind of economic reason for buyers to get that aggressive – as the interest rate differential being in favor of the US dollar probably isn’t enough. Furthermore, that interest rate differential will shrink a bit later this year, and most traders are cognizant of this at this point in time. I am bullish, but I recognize that the “easy money” has been made.

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