The US dollar rallied a bit against the Japanese yen on Wednesday, bouncing towards the 109 level. This makes sense, as we had reached extreme negativity. I believe that interest rate differentials will continue to favor the US dollar to the upside, but there has been a bit of concern around the world due to the Italian situation.
The US dollar has rallied during the trading session on Wednesday, as we had reached as low as the ¥108 level. Now that we have bounced from there, the market looks likely to go looking towards the ¥110 level again. I think that the market could break above there, then ultimately much higher. The market tends to be very noisy, especially when we tried to change the overall trend. Longer-term, I anticipate a move to the ¥112.50 level, but obviously it can take a lot of work to get there.
The 10 year note of course will have a major influence on what we do here, and I believe that the market will continue to find support at several levels underneath, with ¥107.50 being very supportive. In general, I believe that the market will continue to look at the US dollar with favor, as we have higher interest rates coming out of the United States. Those interest rates tend to drive this market longer-term, although the occasional problem coming out of Italy or places like that will add to the volatility.
This is probably more of an investment than anything else, so I would be cautious about throwing too much into the marketplace in one shot, as we could have a lot of headline issues out there. Overall, I think that value hunting continues to be one of the best ways to play this market, something that we are seeing right now.