The US dollar has dropped a bit to start out the session on Wednesday but has an uptrend line just below to offer a significant amount of support. Because of this, I believe that the market will continue to go higher, perhaps reaching towards the ¥112 level. Overall, I believe that the market could perhaps go looking towards the ¥113 level after that. If we break down below the uptrend line, then we are probably looking at a move towards the ¥110 level.
The US dollar has been punished a bit due to the currency war, but quite frankly in the end I think that the interest rate differential will continue to favor the US dollar as the Federal Reserve is known to have a handful of interest rate hikes on the table, while the Bank of Japan is on the sidelines, and nowhere near tightening monetary policy. Beyond that, the ultra-loose policy of the Bank of Japan looks likely to continue for years, so under this scenario it makes sense that eventually we will turn things back around. The Japanese yen is considered to be a “safety currency”, so if we get some type of financial shock, we could then break down. However, right now I believe that the upside is most certainly the favored direction of most currency traders looking for the longer-term move.