The USD/JPY pair broke higher during the course of the day on Tuesday, testing the 103 level. I believe that this market will continue to rally due to the fact that the Bank of Japan is sitting underneath than willing to put a bit of a “floor” in this market near the 100 level. Ultimately, one of the things that move this market the most would’ve been the Richmond Federal Reserve Pres. Jeffrey Lacker suggesting that the interest-rate in the United States is far too low, and it should be closer to 1.5% at this point in time. Because of this, the US dollar got a bit of a rally during the session as of course this is very important to traders as we await to see whether or not there are going to be interest-rate hikes anytime soon coming out of the Federal Reserve.
On the other hand, we know that the Bank of Japan will do everything he can to continue to soften the Japanese yen, so in other words this could be a bit of a “one-way trade” over the longer term. Don’t get me wrong, I don’t think that we are going to shoot straight up in the air, but I do think that given enough time the pair will find its way above the 105 level. This pair has a long history of having messy trend changes, and I might be what we are seeing yet again.
If we did break down below the 100 level, at that point time I would become very concerned about a potential Bank of Japan intervention. It doesn’t look like we’re going to test that area anytime soon, so having said that I look at pullbacks as potential buying opportunities and recognize that volatility could very well be a major factor in this market time and time again as we have to make several longer-term decisions. A break above the 105 level probably has this market looking for the 108 level after that, with of course designs on the 110 level over the longer term.