• The US dollar has rallied a bit during the trading session on Tuesday as we continue to see a lot of upward pressure, and I think short-term pullbacks, I think, continue to attract a lot of attention mainly due to the fact that the interest rate differential is going to remain very wide between the United States and Japan.

That being said, you also have to be very cautious with the idea that the 160-yen level is an area where we had seen a lot of action due to the Bank of Japan getting involved. The 160 yen level is an area that I think a lot of people will have to pay close attention to, and the 160.50-yen level is an area that I think that is a massive barrier for the Bank of Japan to defend as it was a swing high going back to 1990.

Support Levels and Central Bank Intervention

Short-term pullbacks at this point open up the possibility of support underneath at the 50-day EMA as well as the 158-yen level. Anything below there opens up the possibility of a move down to the 156-yen level, but I don’t think that is very likely to be the case.

All things being equal, this is a market that I think you start to look for shorter term trades on drops in the dollar against the yen and that opens up the possibility of a little bit of value hunting as well as short-term opportunities. Ultimately, this is the market that I think does continue to threaten the Bank of Japan and now it’ll be interesting to see what the Japanese yen does because the Bank of Japan has recently received word that inflation is dropping in Japan and that could ease some of their concerns about a shrinking yen. That being said, there is a lot going on at the moment, not only in the Middle East but just around the world in general, so expect a lot of volatility.

Want to trade our USD/JPY forex analysis and predictions? Here’s a list of forex brokers in Japan to check out.

Christopher Lewis has been trading Forex and has over 20 years experience in financial markets. Chris has been a regular contributor to Daily Forex since the early days of the site. He writes about Forex for several online publications, including FX Empire, Investing.com, and his own site, aptly named The Trader Guy. Chris favours technical analysis methods to identify his trades and likes to trade equity indices and commodities as well as Forex. He favours a longer-term trading style, and his trades often last for days or weeks.

As seen on: Pairs Of Aces Podcast,The Trader Guy, FXEmpire