The USD/JPY pair rose again during the session on Thursday in reaction to the lack of easing being mentioned by the Federal Reserve Chairman Ben Bernanke in front of Congress. In fact, Mr. Bernanke even admitted that the effects of any new stimulus would be somewhat limited. He seemed to push the ball in the Congress’ court, and made it known that the Fed has done about as much as it feels it can effectively. In other words, fiscal policy needs to be addressed – not just monetary.
The pair is a fight between two central banks that are currently working against their currencies, and as a result this is a classic “race to the bottom.” The “winner” is actually the country with the weakest currency in this game, as the idea is that exports will become much more competitive. The central banks have both been easing, with the Bank of Japan being the most recent one to act as it expanded its asset purchase program by ten trillion Yen.
However, the Fed has been seen as possibility being forced to ease because of the situation in the European Union and the jobs market in the United States. The fact is that Bernanke seemed to be fairly comfortable in his position of being very “neutral” at the moment, and the markets are probably going to have to come to grips with the idea of standing on their own for a bit.
The pair slammed into the 79.50 to 80 resistance area, and so far it has held. Our signal to go long is to see a break above the resistance area, which we see running all the way to the 80.50 level. Once this happens, we feel that the pair can run much higher before it is all said and done. As for selling, it simply cannot be done although we see the technical set up to do so. The Bank of Japan looks ready to get involved if we fall much further, and because of this we can only buy at this point.
Written by FX Empire