The USD/JPY pair initially fell during the session on Friday, but as you can see bounced off the 101 handle in order to form a nice looking hammer. This hammer signifies of the market is going to continue to go higher, and as a result we are very bullish of this pair, as we have been for some time. This market has clearly broken out above the 100.50 resistance area that we have been watching, with that being the case, we feel that this market will continue to head towards the 105 area, which makes complete sense if you think about the exact opposite side of the prism that the central banks are focusing on.
The Federal Reserve looks to be tapering sometime soon, and the employment numbers on the United States certainly are better. Also, the pair tends to follow the risk appetite of markets around the world, which suddenly look like they are in fact bullish on the economy, or at least the fact that the world’s largest consumer, the United States, is doing better.
On the other side of the Pacific, you have the Bank of Japan. They are currently in a very loose monetary policy, and looking to expand it more than likely. At the very least, they are much farther away from tightening monetary policy than the Americans are, so obviously we feel that this market should continue to favor the US dollar overall. Bond markets, and their differentials between the two countries, especially in the 10 year notes, tend to drive this market overall. Pay attention to the fact that the yields favor the Americans, and you will understand why money flows from left to right across the Pacific.
On the other hand, the market has plenty of support below, so we feel that this market should continue to climb higher. Even after falling from time to time. It’s a longer-term grind higher that we see, and this is the beginning of a longer-term uptrend in our opinion as this pair has possibly bottomed from the meltdown that we’ve seen since the financial crisis began.
Written by FX Empire