Last week, I expected that heightened Fiscal Cliff fears would lead to renewed interest in buying the Japanese yen (see “Peering Over The Fiscal Cliff, The Yen Gets ‘Cheap’, Australian Dollar ‘Expensive’“). That interest turned out to be VERY temporary. As post-Christmas trading opened, the U.S. dollar surged yet again against the yen (FXY). It is now challenging the 2011 high.
USD/JPY is now reaching what I consider escape velocity. A firm and convincing close of trading on the 26th to what will be 27-month highs will seemingly assure that the on-going rally will take on new vigor and enter a new phase. I think the 90 level will be a natural new target. I was hoping to fade the yen on a pullback in USD/JPY, but it appears such a discount is not in the cards anytime soon…
Be careful out there!
Full disclosure: no positions