The US dollar has initially pulled back during the trading session on Wednesday as we are reaching extraordinarily high levels against the Japanese yen. This is an area that has been important more than once, and quite frankly this is a market that has gotten far too ahead of itself recently. This is a market that has been parabolic, and that cannot last forever. This pair typically does not act like crypto currency, so I do not expect it to be the case going forward.
USD/JPY Video 14.10.21
A breakdown below the bottom of the candlestick for Wednesday could open up a pullback towards the ¥112.50 level, even down to the ¥112 level. Just above, there is a significant amount of resistance all the way to the ¥114 level going back several years on the monthly chart. If we were to simply slice through that, it would be an extraordinary turn of events. I think that at the very least we need to see a pullback in order to build up the necessary momentum. Yes, inflation is picking up in the United States but at the end of the day, the question then becomes who is left to buy at these extraordinarily high levels?
That being said, I would not short this market, but I would be willing to short other yen related pairs of it does pull back. The US dollar is the big winner in general, so other currency such as the British pound or Swiss franc probably pull back quickly against the yen in that scenario.
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