Yen Futures are At a Major Inflection Point
Short-Term Rally in the Yen
The yen has been on a big rally for over a month now. This is mostly due to the expectation that the Fed will stop cutting interest rates. Ueda also hinted towards the idea of increasing interest rates in his previous comments. This would add strength to the yen. But I won't believe it until I actually see it.
Forex Machanics
There are a few variables that could affect the path of yen futures in 2024. When the Bank of Japan finally does start hiking rates, that would increase demand for the yen which would strengthen the currency.
When the Fed finally starts cutting rates, then this would weaken the U.S. dollar, giving more strength to the yen.
Improving economic conditions would naturally give a boost to the yen. I believe improving economic conditions would be the biggest factor for the yen. This would give the BOJ some wiggle room to increase rates which would bolster the yen even further. When this happens I will consider taking on some leverage in the yen with $Proshares Ultra Yen (YCL.US)$. If I'm shorting the yen then I would go for $ProShares UltraShort Yen (YCS.US)$.
You can see the markets reaction to Powell's comments on potential rate cuts. The dollar fell big and the yen gapped up over night. This is the market front running the potential rate cut. It was very bullish for the yen.
Technical Outlook
The yen is sitting just beneath a long-term resistance that has held the yen down for a very long time. Also the technicals are showing a double bottom in the charts with a bullish divergence on both MACD and RSI indicators.
Conclusion
Everything is pointing towards short-term bullishness on the technical picure. But as for the macro outlook, I would have doubts until I actually see the Japanese economy improving so the BOJ can actually increase rates. I won't believe it until I see it. A falling dollar will help the yen but without economic improvement, I can't have confidence in any yen bullishness.
As always, I am not a financial professional, and this is not investment advice. Be careful and be patient. Dont anticipate the market. Rather, participate in the market. Don't invest money that you can't afford to lose. Give some of your investments time and know when to cut your losses.
Don't be greedy. Don't invest in anything you don't understand. Don't put all of your eggs in one basket. Don't listen to the hype. Don't fomo or panic into or out of trades. Do your own due diligence. And just follow the trends. A trend is your friend. Good luck trading.
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