The US dollar has rallied a bit during the trading session on Tuesday, wiping out the losses from the Monday session. This is a good sign, as we approached the ¥109.70 level. At this point, if we can break above there then I think the ¥110 level is a target, and then eventually we could go as high as the ¥111 level based upon the previous gap. That’s my base case scenario, but we need good economic performance by risk assets to make that happen. On the other hand, if we get more panic, we could see the Japanese yen strength and, thereby sending this pair below the ¥109 level and looking towards the ¥108 level which is supportive as well. All things being equal, this is a market that is highly sensitive to the US stock markets, so pay attention to what’s going on over there.
The Australian dollar has gone back and forth against the US dollar during trading on Tuesday, as we continue to see a lot of volatility. Overall, this is a market that will continue to see a lot of volatility but more importantly it will see a lot of support extending all the way down to the 0.68 handle. Because of this, this is a market that I’m only willing to buy, and I’m not interested in selling. If we can break above the 0.70 level, then I think we pick up about 50 pips to go to the 0.7050 level. We would need the US/China situation to boost this market, something that seems to be very unlikely.
However, if we do see a good turn of events, the Australian dollar should be one of the first places to rally at that point. If we were to break down below the 0.68 level, we could break down rather drastically.