The USD/JPY pair tried to rally during the session on Thursday, but as you can see lost most of the gains by the time we closed at the end of the day. The 104 level proved to be rather resistive, so the fact that we pullback and formed a shooting star suggests that we are in fact going to see some type of pullback at this point in time. This type of pullback could signal more selling, but more than likely we believe that it simply going to be to opportunity to buy this market at a lower price.
We suspect that the 103.50 level will be supportive, and therefore any type of pullback based upon the knee-jerk reaction to the nonfarm payroll number today will more than likely bring in buyers in that general vicinity, perhaps extending all the way down to the 103 level. With that being the case, we actually look forward to some type of pullback as it should give us an opportunity to take advantage of the potential value that could be found in this market.
Don’t forget that the two central banks are diametrically opposed, so while the Federal Reserve looks to taper off of quantitative easing, the Bank of Japan looks to continue it, if not and to it. Ultimately, we feel that the interest-rate differential will continue to push this pair higher over the longer term, so pullback should be a nice buying opportunity based upon the weaker hands out there reacting to the news.
On the other, if we break the top of the shooting star that of course is a very bullish sign as well. Regardless, whether we break out to the top or pull back and find support, we believe that ultimately this pair will test the 105 level. The 105 level should offer a bit of resistance, but ultimately we believe that the market is going to go above there and head towards the 110 level given enough time. Pullbacks should continue to offer buying opportunities going forward as well.