The USD/JPY pair shot straight up during the session on Thursday, and tested the 103.50 resistance area. Because of this, we feel that the Japanese yen will continue to weaken overall, and that buying this pair is still the only way to trade it. After all, the Federal Reserve has even more impressive numbers to look at now, as retail sales came out much better than anticipated during the session. This could increase the argument for a tapering off of the bond buyback purchase program, and that of course will have the US dollar, increasing as bond yields should continue to expand in America.
On the other side of the Pacific, the Bank of Japan continues to buy Japanese Government Bonds, and as a result the JGBs should continue to offer far too little in the form of a return to attract a lot of money into Japan. We still think that the 105 level will be targeted in the short term, and could possibly be hit before the end of the year.
Any pullback at this time should be thought of as a buying opportunity as the Japanese yen will without a doubt continue to depreciate over the longer term. The Bank of Japan is just fine with this, and the market is starting to anticipate that the Federal Reserve simply will have to taper given enough time.
Watch the 10 year notes, if the American 10 year bond goes over the 2.80% level, we could see a real run into the US dollar in this market could absolutely explode to the upside. If we see this, we think that the market will more than likely have the 110 level without too many issues, and also are starting to believe that this is in fact a longer-term Altai year uptrend waiting to happen. We sell something very similar to this back in 1996, and if you look at your longer-term charts you can see how choppy it was before we finally broke out. However, looking at the monthly charts we have to recognize the fact that the 105 level is indeed a fulcrum point for both support and resistance over that longer-term. However, if we can get above 105, we think there’s absolutely nothing stopping this market from skyrocketing much higher over the next several years.
Written by FX Empire