The USD/JPY pair shot straight up on Tuesday as the Federal Reserve minutes made no real mention of any form of quantitative easing coming in the near future. The release solidified the bullishness of this pair as the US Dollar got a boost from this release.
The pair has several things working for it at the moment, and as a result we are only buying it. The Bank of Japan has massively expanded its bond buying program, and this is akin to printing Yen and throwing them into the markets. The Yen overall should continue to weaken over the long term as the situation in the United States seems to be improving at the same time.
The economic numbers in the US have been trending higher, and the Japanese ones have been weak. There is a positive swap in this pair – albeit a small one – but this is another reason to own the Dollar over the Yen. The 82 level has been broken to the upside again, and it looks as if the momentum is picking back up.
Certainly the Federal Reserve looks more likely to raise interest rates before the Japanese, and this should continue to bring money into this pair. Also, the US stock markets should continue to outperform the Japanese ones as there is simply far weaker than the majors in America. Also, the fact that there may not be a pressing need to ease in America, suggests that the underlying economic conditions in America may be strengthening and therefore we should see even more investment going forward in the US.
The 83 level above should produce some decent resistance, but the overall trend of this pair seems to be changing right before our eyes, and certainly the bulls are running the show now. Because of this, we like buying pullbacks as long as we are above the 80 level. It isn’t until we get below that mark that we would even consider selling this pair. The 85 level should be resistive as well, but if it gives way – we are going to go much, much higher.
Written by FX Empire