The US dollar rallied against the Japanese yen during the trading session on Wednesday as we are now threatening the 158-yen level.
The 158 yen level of course is an area that a lot of people will be watching closely as it's a round figure and then on top of that it's an area that has shown support and resistance in the past.
Because of this, I think if we can break out above the 158-yen level we could go looking much higher, perhaps even to the 160-yen level. Ultimately, this is a market that I think continues to see more of a buy on the dip type of situation with the 156-yen level as a major floor.
The USD/JPY pair rallying from here makes quite a bit of sense, but the 158-yen level is an area that will continue to be a significant barrier, but getting above there opens up the possibility of the market really racing to the upside. Keep in mind that the Bank of Japan has shown itself to be very aggressive in shorting this pair when the Japanese yen gets hit too hard.
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That being said, there is a real problem when it comes to the market and whether or not it can break higher because if we do get that breakout above the 160.50-yen level we could see the Japanese yen get absolutely crushed. In that environment, I think you would see the Japanese yen get crushed not only against the US dollar but almost everything else.
I don't think that happens anytime soon, but we are more likely than not going to see the market at least try to get there. Keep in mind that Friday is the non-farm payroll announcement and that has a major influence on this.
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