The US dollar has rallied quite nicely during the trading session on Tuesday, as we continue to find plenty of support against the Japanese yen. Recently, we have seen a lot of selling pressure, but quite frankly I think this pullback has been very good for the pair, as the ¥114.50 level of course has been massive resistance in the past. Pulling back to the 61.8% Fibonacci retracement level makes sense, and as you can see I have a gold box between the 50% and the 61.8% Fibonacci levels for a potential buying area.
The 50 day exponential moving average, pictured in red on the chart, slices ran through the daily candle on Tuesday, so it does in fact look like the ¥112 region will offer enough support to turn things around. I have no illusions about this being easy, but I think what we are seeing is the beginning of a basing pattern in a currency pair that is highly influenced by the interest rate differential and of course the interest rates in the United States. If we start to see the 10 year yield rise in America, that typically will push this pair higher. Beyond that, we could also get a bit of a boost if the stock market takes off to the upside, which it looks like it could.
The alternate scenario of course is that we break down below the 61.8% Fibonacci retracement level, the ¥111.50 level, which would be very bearish. My experience has been that typically if we break down below the 61.8% Fibonacci retracement level, we wipe out the entirety of the move. In this scenario, that would bring the pair down to the ¥110 level which of course has a lot of psychological importance attached to it.