USD/JPY had a reasonably bullish day on Wednesday as the bounce from the 79.50 level happened as predicted. The area looks as if it is the beginning of support in this pair, and the market is well aware of the Bank of Japan and its defense of this pair below current levels. With that being said, it appears that the 80 handle is the epicenter of price action for this currency pair at the moment.
Ultimately, we believe in buying this pair as the Federal Reserve it is more than likely much closer to normalizing rates than the Japanese central bank. We see the recent high at 80.60 as the level that needs to be overcome in order to buy this pair. In the meantime, more than likely we will see a sideways grind with a lot of choppiness.
If this pair breaks down from here, it is very likely that the closer we get to the 78 handle, the more aggressive the Bank of Japan will become in defending the Dollar against the Yen. Because of this situation, we feel that this pair can only be bought going forward.
The Federal Reserve chairman made it quite abundantly clear at his last news conference that unemployment remained the biggest barometer for the Federal Reserve in making its decisions. With that in mind, we think that the rates in the United States while staying low should continue to rise over time as the employment situation in that country is much better than many others. However, until we see stronger jobs numbers it is quite likely that this pair will be difficult to trade.
However, if you fast forward to the day that the United States starts adding jobs in the neighborhood of 200,000 a month, this pair should return to what once was – an easy one way carry trade as rates rise. This isn’t something that we see happening right away, but this pair will be highly sensitive to the Non–Farm Payrolls number at the beginning of each month. Once those start to perk up, this pair will we have one direction to go and we will treat it is a long-term trade. In the meantime, we think sideways action will remain the norm.
Written by FX Empire