USD/JPY had a bullish session on Monday as the equity markets around the world continue to rally. The pair had recently bounced from the 50% Fibonacci retracement level of the rally from 80. The pair also has enjoyed a bit of bullishness based upon the Bank of Japan aggressively buying JGBs in a bid to print Yen and flood the market.
The higher Yen has absolutely crushed the export market for the Japanese, and as a result the Japanese economy has really suffered lately. The recent announcement of the Bank of Japan’s look at expanding bond buybacks pushed this pair higher, and with the US economy showing some signs of life, this makes for a much stronger pair overall.
However, on Monday Federal Reserve Chairman told Congress that the idea of “Quantitative Easing 3” isn’t out of the question. Because of this, the USD/JPY rose but underperformed many of the other Yen related pairs. With this in mind, the pair may be bullish, but there could be bigger gains to be seen in other pairs such as the AUD/JPY, NZD/JPY, and GBP/JPY pairs.
The pair does look very bullish though, and we think that the pair will continue to rise over time. The Monday session broke above the Thursday doji, and this would have been a buy signal that we mentioned at the end of that very session. With this in mind, we think that the 85 level will be tested in the short term, and it could be seen in relatively short order as the possibility of more easing by the Fed will continue to push stocks higher, which the USD/JPY pair will typically follow over time in “normal” markets. (This is especially true with the S&P 500 index, and as we “normalize” this could be the case going forward.)
We are buyers of dips in this pair, and will not sell it as the trend shift has been so strong lately. The 85 level is the real fight as far as we can see, and it is there that we have the biggest concerns. However, if that level gets broken to the upside on a daily close, we are going to be long-term holders of this pair. Selling isn’t possible until we can close on the daily below the 80 level.
Written by FX Empire