The USD/JPY pair initially tried to rally during the course of the day on Thursday, but found a bit of resistance and pulled back to form a shooting star. This of course is a negative sign, but quite frankly we feel that there are buyers below. We think that the market will continue to consolidate in general, as the 118.50 level below is supportive. We also recognize that the 122 handle above is resistive, so the fact that we have formed a shooting star for both the Wednesday and Thursday session suggests that we are more than likely going to pull back and stay within the consolidation area, and with that we think short-term sellers will probably pushes market lower. Ultimately though, we are looking for buying opportunities near the 118.50 level, as we believe ultimately this market will probably try to break out to the upside.
The Federal Reserve is looking to raise interest rates later this year, and we still believe that there will be at least one interest-rate hike. However, the Bank of Japan is on the other side of the equation, and with that we feel that the market will ultimately go higher, simply because the Bank of Japan is very likely to continue quantitative easing for much longer than the Americans, and that of course should continue to add bullish pressure.
So we are willing to buy you supportive candles below, or breakouts above the 122 handle. At that point in time we feel that the market would then head to the 125 level, and as a result should offer longer-term buying opportunities eventually. Quite frankly, it still possible that we break above the 125 handle between now and the end of the year, but we need the Federal Reserve to start raising interest rates and of course release a statement that suggests that we could continue to go higher. If that’s the case, that really should put a bit of a boost to the buyers. On the other hand though, we could have the Bank of Japan step in and do something in order to weaken the value of the Yen as well.