The USD/JPY pair fell during the bulk of the session on Wednesday, but found the 102 level be supportive enough to cause a slight bounce at the end of the session. We are still well within the uptrend, and as a result we think this market will continue going higher over the longer term. In fact, the candle from the session on Wednesday is close enough to a hammer to warrant buying this pair above the 103 level again, and with a little bit of imagination, you can make a case for a significant uptrend line that held as support during the session.
Going forward, we think that the 103 level will be a little bit of a challenge, but ultimately this market is going to find the 105 level. Part of the reaction on Wednesday was based upon earnings reports the United States that weren’t necessarily stellar, but at the end of the day. We know that the Federal Reserve is much closer to tapering than the Bank of Japan is. Because of this, eventually the interest rate differential will drive this pair higher anyway.
We believe that there is a significant floor right around the 101.50 level, which could cause buyers to come in to the market with significant strength. Supportive candles around that area would be a sign that perhaps we would consolidate sideways after the significant move higher, which of course is common as well. It is the end of the year, so it’s probably asking a bit much to expect some explosive move to the upside anyway, and this consolidation would make a lot of sense.
We don’t really have a scenario where we would sell this pair, and would even technically begin to look at that possibility until we get below the 100 handle, something that doesn’t seem very likely at the moment. Below there, there still a lot of noise, so quite frankly we aren’t even sure we would sell underneath that level. Ultimately, we think this is the beginning of a multiyear trend to the upside.
Written by FX Empire