The USD/JPY pair broke higher during the session on Wednesday, clearing the top of the hammer from Tuesday. Because of this we feel that the market is going to continue to consolidate overall but we also recognize that it is Nonfarm Payroll number day, and that of course means that there will be a lot of volatility in this market. After all, there are a few things the market pays attention to more than employment in the United States, and more importantly: its effect on interest rates coming out of the United States.
The United States currently has higher interest rates than Japan, and with the Bank of Japan looking to stay very easy in the monetary policy department, it’s very likely that the interest-rate differential will only expand. That is probably the biggest driver of this currency pair overall, and as a result the employment figures almost always move this market. With that being said, if we can break back above the 125 level, we believe that the market will continue to go much higher on the longer-term perspective as well.
Even if we fell from here, we don’t have any interest in selling this market until we get well below the 190 level, something that’s not going to happen today. Keep in mind, the Japanese yen is a little bit of a “safety currency”, so it may get a little bit of a bid due to the situation in Greece, but that will be short-term at best. We ultimately believe that this market does go higher given enough time, but volatility of course will be a factor in this pair as we get the jobs number.
We believe that ultimately we should get to the 130 level by the time we get to the end of the year, but between now and then you would anticipate quite a bit of back and forth action. Ultimately though, this is more or less a long-term “buy-and-hold” type of situation if you have the ability to hang onto the trade. There is no scenario at this point in time that has us change in our longer-term outlook.