The USD/JPY pair initially fell during the session on Friday, but broke higher close just below the 102 handle. With that being the case, we feel that the market will continue to grind its way back to the 103 level, and the fact that we formed a hammer on the longer-term charts certainly doesn’t hurt either. Ultimately, we feel that this market will continue to consolidate between 101 and 103, and as a result it becomes a range trade. What we begin to wonder is whether or not this range trade will be throughout the entire summer. After all, we are heading into what could be fairly quiet months going forward, and this pair grinding sideways really wouldn’t be that big of a surprise.
The Bank of Japan continues its loose monetary policy, and as a result we think that the market will more than likely respect that and keep the Yen somewhat soft. However, the Federal Reserve is on the opposite end of the spectrum in the sense that it’s just starting to phase out quantitative easing, and they could very well find itself raising rates over the course of the next year or so. We don’t really know if it will be a direct rate raise, or if it will be something along the lines of more tapering off of quantitative easing, so having said that he feel that this market should be positive for the US dollar more than anything else, but ultimately the reality is that the market could be fairly slow-moving.
We think that the move to the 103 level is almost assumed at this point in time by most market participants, but a move above 103 in things get truly interesting. That should send the market to the 104 level, and then ultimately the 105 level. With that, we feel that this market is very bullish and as a result we find that it’s almost impossible to sell. Anytime we pull back at this point time, we should see buyers, especially near the 101 handle as it has been so supportive.