USD/JPY Weekly Price Forecast – US dollar mixed against Japanese yen

The US dollar has been pretty mixed during the week against the Japanese yen, which makes perfect sense considering the dynamics at play in this currency pair. On one hand, you have a risk sensitivity in this pair, but at the other hand you have the US dollar being a bit too overbought. · FX Empire

Christopher Lewis

Updated Fri, Aug 17, 2018, 10:32 PM

The US dollar has gone back and forth during most of the week against the Japanese yen, hovering above the ¥110 level. This level has been important more than once, and after the recent surge higher it makes sense that maybe we need to take a little bit of a break. Beyond that, we have the tensions between the United States and China, which of course causes a lot of problems. However, we did get signs that perhaps relations may be improving, as the Chinese are coming to the United States in order to have conversations in the future. With that, the market did rally a bit but at the same time there are so many other geopolitical concerns that it might be difficult for this pair to take off right away.

Looking at interest rate differentials, the United States is the clear winner in this argument, as the Federal Reserve is likely to raise interest rates several times over the next year, while the Bank of Japan is an even thinking about tightening its monetary policy. Ultimately, I believe that we will find that this pair rallies, but there’s probably more support closer to the ¥109 level than what we have right now. With that in mind, I’m bullish but recognize that we may need a little bit of a pullback to take advantage of the bullish attitude. Expect volatility, and probably more of a short-term market.