The US dollar gapped higher against the Japanese yen at the open on Monday, as Abe won the elections easily in Japan, which of course is good for the Nikkei, and suggests that we are to continue to see extraordinarily soft monetary policy coming from Japan. That helps soften the Japanese yen, but at the same time we have several factors pushing the US dollar higher. The tax breaks that are coming to the Americas should continue to favor the US dollar, and of course we have the Federal Reserve looking likely to raise interest rates at least once or twice in the next year, and some people are calling for 3 interest rate hikes. Because of this, we should continue to see bullish pressure on the US dollar overall, and with the Bank of Japan being so loose with its monetary policy, it’s likely that we will continue to see this pair grind to the upside.
Pullback should offer buying opportunities, and I believe that the 112-level underneath is going to be the “floor” in the market. Above, I see a significant barrier in the form of the 114.50 level extending to the 115 handle. Once we break above the 115 handle, the market could go much higher. Overall, I prefer buying pullbacks, but I think that the noisy market will continue to be an issue, with an eventual breakout coming. However, we probably need a larger catalyst to make that move. Once we do, the USD/JPY pair becomes a bit of a “buy-and-hold” market. If we were to break down below the 112 level, I think there is still plenty of support below, especially near the 111 level, which has been important in the recent past as both support and resistance.
Written by FX Empire