The USD/JPY pair ended up producing a fairly neutral day on Monday as we bounce around just below the 90 handle in this market. We see the 90 level as significant resistance, and as a result would like to see a pullback before we got involved in this marketplace. However, we also recognize the fact that a move above 90 would fact be a very bullish sign.
If that were to happen, we would be forced to start buying again as is market would obviously be breaking out of another barrier. However, we believe that the most about you would be found in a pullback at this point in time. We could fall as far as 85 and still feel very bullish about this marketplace in the short-term. Ultimately, we think the “floor” in this market is at the 80 handle. Because of that, selling this pair is simply not an option.
The Bank of Japan will more than likely not tolerate a move below 85 anyways. Recently, and has been announced that the Bank of Japan and the government of incoming Prime Minister Shinzo Abe have agreed to an increase in the inflation target, essentially trying to double what the country is seeing presently. This means that they absolutely need a lower value to the Yen.
On the other side of the Pacific, the United States seems to be showing signs of strength at the moment. Nothing amazing, but growth nonetheless. As the ten-year bonds selloff and produce more yield, money will flow from Japan into the United States. This is the ultimate bullish case for this pair, and if it does come true we could see a significant move higher.
We believe that this has become a “buy only” pair from this point on. With the Prime Minister and the Bank of Japan both looking to weaken the value the Yen, we believe this market will certainly be higher by the end of the year, but it’s come so far in such a short amount of time that we do believe that there will be the possibility of buying this pair at a better price.
Written by FX Empire