The Chart du Jour
Many moons ago on February 8, 2000,we printed the chart below of USD/JPY suggesting that 168.05 JPY would be in the cards at some point -- simply basis the lovely Fibonacci rhythm such an extrapolated high would create on the weekly chart. Since that time, very little has happened. USD/JPY has remained somewhat dormant in the 104-110 region, neither abrogating nor offering any confirmation of our view.
Yet in the last two days, USD/JPY has started to show some life to the upside, and may finally be coming out of hibernation. As shown on the chart below, the dollar has now cleared the 40-week moving average which is rounding under current prices. The dollar could easily be headed toward the 100-week moving average up at 114.80, a first layer of technical resistance.
Fundamentally, the traditional ruling bureaucrats in Japan have slowly been losing both their credibility and their absolute majority. The Japanese are talking increasingly about normalizing their interest rates away from the failed zero-percent policy of recent years. Although it may seem counter-intuitive to have rates in Japan go up while their currency weakens at the same time, this is exactly what this country needs in order to return their economy to more steady footing longer term. Somehow, this is also likely to be what the market delivers.
We'd be long the dollar here with a stop set just below 104 yen.
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