The USD/JPY pair fell during the bulk of the session on Thursday, but found enough support near the 101.50 level in order to bounce and form a hammer for the second session in a row. This suggests to us that the market is going to continue to find support below, and that the buyers are willing to step in any time that they see perceived “value.” With that, we still can’t short this market because it seems like an exercise in futility.
However, we recognize the fact that breaking above the recent highs from the last couple of sessions is absolutely vital in order for the market to continue going higher. The central bank situation between the two currencies of course favors a US dollar, as the Federal Reserve continues to taper off of quantitative easing while the Bank of Japan continues to try to stimulate the Japanese economy as the value of the Yen is still historically high.
Sense the Bank of Japan has continually work against the value of the Yen, we believe that this market will continue to go higher given enough time. Quite frankly, if the jobs situation in the United States starts to pick up as well, that would be the final “nail in the coffin” in this pair as far as directionality is concerned, sending this pair skyrocketing higher. That being the case, we still feel that even if it is a slow grind higher, it is in fact going to be a move higher given enough time.
We recognize the 105 level as being a significant resistance area above, and that is one of the reasons why we haven’t listed as a target in this pair. However, we believe that the 105 level will eventually be broken above as well, sending this market looking for the 110 handle. That won’t necessarily be the easiest move, and there will be several pullbacks along the way. However, we feel that those pullbacks should continue to be buying opportunities over the longer term. We don’t see a situation in which we want to sell this pair right now.