The Dollar-Yen Hits a 34-Year High

From the Desk of Ian Culley @IanCulley

So much for buying the Japanese yen.

Forex markets are taking a shot at the Japanese currency as the aussie, kiwi, and Canadian dollars post fresh decade highs versus the yen.

Not to be outdone, the USD/JPY pair is printing its highest daily close since April 1990!

Check out the dollar-yen’s eight-week base breakout:

The path of least resistance now points higher toward 170, but only if the USD/JPY trades above 158.

I’ve been bearish the dollar-yen pair since it peaked in April. However, as traders, we must update our prior biases based on the current data. And it doesn’t get much more bullish than a new 34-year closing high.

Today’s USD/JPY breakout not only flips my outlook for the yen. It also impacts my view of the US dollar and interest rates.

Dollar strength will likely broaden while interest rates creep higher (two potential headwinds for global equities) if the dollar-yen continues to rise.

On the other hand, a USD/JPY rally also suggests a low volatility environment for risk assets as investors are eager to collect the positive carry associated with holding a long USD/JPY position.

Perhaps it's been too easy for stock market bulls.

So far, the major equity indexes have sidestepped a strong dollar and elevated rates.

But bulls beware: US dollar and interest rate headwinds will increase if the USD/JPY rips higher.

Stay tuned.

-Ian

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