Nov 11 (Reuters) - Traders who believe U.S. interest rates have lost the power to lift the dollar further and are reducing bets on its rise are acting prudently.
Those who short the dollar when they know U.S. interest rates have further to rise, while dollar remains in a technical uptrend, may be acting rashly.
Other than the growing perception that U.S. interest rates won't rise beyond 5 percent, which is 1% higher than their current level, the biggest factor influencing the current change in the currency's direction is massive intervention.
Intervention that is counter to the technical and fundamental trends that have underpinned the dollar, and will continue to do so, is not a good reason to bet on a currency.
The situation for USD/JPY traders - with BOJ selling masses of dollars while buying huge amounts of bonds - is extreme, and this pair is where recent intervention has been greatest and has caused the most distortion. Because BOJ policy is linked to bonds and BOJ is intent on retaining this policy, there's a high probability that yen will come under renewed and potentially extreme pressure if - more likely when - intervention is curtailed.
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(Jeremy Boulton is a Reuters market analyst. The views expressed are his own)
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.