US dollar pulls back against Japanese yen on Wednesday

The US dollar has pulled back a bit against the Japanese yen during the trading session on Wednesday, reaching down towards the 106.70 level before bouncing a bit. At this moment, I believe that we are trying to form some type of consolidation between the 106.50 level and the 107.50 level. This is quite common in this type of environment, as it could be indicative of the market trying to build up the necessary momentum to break above a major resistance barrier. Because of that, I think that we will see a lot of choppiness in this market, especially when headlines crossed the wires coming from either Beijing or Washington DC about potential trade tariffs. I don’t think things are going to escalate much, and if that’s the case we should see this market rally.

Alternately, if things do heat up between the 2 economies, then I think the market probably drops down to the 106 level rather quickly, with the 105 level under there being even more supportive. That is an area that should continue to be important, because it is not only a large, round, psychologically significant number, but it is also where a nice uptrend line coincides. Because of that, I think that the market will continue to be very noisy, yet heavily supported in that area. I have no interest in shorting this market in the short term, I believe that eventually we will break out.