The USD/JPY pair initially broke down below the 120 level during the course of the session on Tuesday, but found enough support below to turn things back around and form a massive hammer. Because of this, the market looks as if it is finding buyers ahead of tomorrow’s interest-rate announcement and more importantly, the statement. If the US dollar rises, it will have to deal with the 122 handle, which has been resistance previously. However, this market looks as if it is trying to find enough momentum to break out to the upside. After all, the market fell massively just a couple of weeks ago, and here we are just hanging about in a fairly tight range. With this, we feel that this pair does eventually break out to the upside and reaches towards the 125 level. However, it obviously needs to get above the 122 handle in order to pick up enough momentum to go that high.
Pullbacks at this point in time should be thought of as value, and as a result we continue to buy until we break down below what we think is the “floor” in this marketplace right now, the 118.50 level. With that, the market should eventually find enough buyers to bounce off of that area yet again, as the market appears to be well supported. The 125 level above of course has been so resistive that we feel it takes quite a bit of momentum to get above there finally, and once we do it suddenly becomes a longer-term “buy-and-hold” type of market. At that point in time, we would continue to buy on the dips going forward as it should be a multi-year trend as the market should feel free to go much higher that point in time, and it would probably signal that the currency markets believe that the Federal Reserve will continue to raise interest rates, which of course will continue to drive a longer-term trend to the upside. Ultimately, we don’t really have any real interest in selling, at least not now.