- USD/JPY pulled back slightly in thin post-Thanksgiving trading, but broader fundamentals still favor the upside.
- With Japan unable to tighten meaningfully and U.S. policy still supportive, the pair remains a buy-the-dip market above key support zones.
The US dollar initially rallied on Friday against the Japanese yen only to turn around and show signs of hesitation. That's not really anything that I care about because Friday was a very thin trading session with the Americans basically stepping away from the markets as they tend to take four-day holidays for Thanksgiving. Nonetheless,
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We have seen a short-term pullback as of late, and I think that is something that you need to keep in the back of your mind, recognizing that maybe the market got a little bit ahead of itself. And of course, there's the usual machine-driven nonsense and panic about a Federal Reserve official saying one thing and then another one saying a different thing. And now we're back to the Federal Reserve, which is going to cut rates to oblivion again.
Fundamental Divergence and Pullback Opportunities
These wild swings have become the norm in sentiment because it's not human sentiment; it's quantified mathematical sentiment. With that being the case, it's a different world, but at the end of the day, you do get paid to hang on to this trade. And I still am bullish because the Federal Reserve may cut rates once or even twice, but the Bank of Japan is not going to get ultra-tight with its monetary policy anymore. Math and reality just don't allow them to do this. With that being the case, I look at significant pullbacks as wonderful buying opportunities in a market that I have been long of for months. I have no interest in shorting this market, and every time it dips and bounces, I add to an already sizable position at this point. If we can break above the 158 yen level, then I think we start to think about 160 yen and so on.
Right now, for me at least, the floor in the market is at the 153 yen level with the 50-day EMA sitting there. If we were to break down below there, then maybe I could collect all of my profit and then rethink the situation. But until then, this is a buy on the dip scenario.
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