After posting a, intra-day high at 88.40 last week the Japanese Yen has begun this week by correcting slightly.  As I write this the Yen is flirting with the 87 level and looks primed to test the low near 86.8.  Since the announcement of QE IV by the Fed and the election of uber-dove Abe, the Yen has been on a one-way trip to debasement.   But, since nothing goes up (or down) in a straight line this correction is normal.  The bigger question is, however, if the Yen cannot muster enough energy after multiple liquidity injections by the BoJ to attack the 95 level then that would bode very badly for the U.S. dollar in the medium term.

The BoJ wants inflation.  And I believe that the Japanese are doing their part to support the U.S. over China but both countries want a weaker currency.  I almost get the feeling that FOMC Chairman Bernanke wants to get higher imports prices but at the same time only from certain countries.  So, he’ll welcome higher Chinese imports but lower Japanese ones.

On that same front the Euro has been flat this week after touching $1.2999 and is now bouncing around between $1.30 and $1.31.   It looks, right now, that the rally is the U.S. Dollar is on hiatus, especially with the Yuan pushing back below $6.23.   There is now significant resistance at the 81.50 level on the USDX.  The Euro is not going to break down unless some weird thing happens in Spain and the Yen would have to push to 95 by the end of the month with the Euro flat to get that big of a move in the USDX to confirm a structurally stronger U. S. Dollar, which the Fed explicitly does not want.