The USD/JPY pair initially try to rally during the session on Wednesday, but at the end of the day pulled back enough to form a shooting star. The 102.50 level is an area that has caused resistance previously, so the fact that we fell from there is a necessarily a big surprise. It is the top of the recent consolidation area that we have been in, so therefore it really doesn’t surprise us one way or the other. Any fall from here though should continue to go down to the 101 area, but at the end of the day we feel that this market is trying to form a little bit of a base.
That base could be the beginning of a move higher, which of course would perhaps run much higher and cause the beginning of a new trend higher. After all, the Federal Reserve continues to look like they are getting ready to taper again, and that should continue to widen the differential between the interest rates of the ten-year notes of both countries. That is one of the biggest drivers of this market, and we believe that it will continue to favor the Americans over the longer term. With that in mind, we are willing to buy a supportive candle below, especially near the 101 handle.
If we break out above the 103 level, we feel at this point in time that would be a move to 105 almost guaranteed, as the market would continue to try and build a longer-term uptrend. Above the 105 level since this market to the 110 level, and perhaps even higher than that. Quite frankly, we are very bullish of this pair over the longer term and believe that perhaps this is the type of move that could last months, if not years. This pair has a long history of doing just that, as the previous “carry trade” proved. We believe that pullbacks in this market should end up being a buying opportunity as the overall attitude of this pair has been changing and evolving over the last several months.