The USD/JPY pair had another bullish session on Thursday as we continue to climb at a parabolic rate. However, there are many out there who are repricing the monetary policies of both central banks involved in this currency pair, and as a result the Bank of Japan is presently looking like the more devastating central bank to its own currency.
With this being said, we have most certainly broken out, and even had gapped at the open, which of course has not been filled yet. This means that we could see a pullback to that area and another leg higher. In the meantime, if you are already in this pair, there’s no reason to be out of it as it is so bullish. However, if you are not long of this pair yet, this is not the time to enter. When moves like this happen, you never know when they’re going to end, but they typically do rather quickly.
Monitoring your stop losses will be absolutely vital if you are long already. We are at the end of the year, and this of course means less and less volume. This can work for or against you, and this is why you absolutely positively must have stop losses in place in a pair that is moving like this one is. With this in mind, we are already long of this pair, but most certainly have stop losses that have been moved up in order to protect gains. While we do expect this pair to move higher, the truth is that we could have a pullback in rather short order, especially considering that this pair could fall in response to the US fiscal cliff talks. Until that gets resolved, we cannot necessarily assume with 100% clarity that the “risk on” rally will continue in this pair.
With all this being said, it is very difficult to go long at this point as it would simply be “chasing the trade.” However, is very obvious you simply cannot short this pair. Some people will have shorted it with the expectation of “filling the gap”, and as a result will have to sit through a lot of pain before that happens. That is not a wise way to trade, and seizes your trading capital on a position that you’re sitting around waiting to correct as opposed to putting an efficient use of that trading capital to work. Going forward, we expect this to be a “buy only” pair.
Written by FX Empire