The USD/JPY pair fell during the session on Tuesday, testing the 103 support level. This level of course has been massively resistive in the past, so it makes sense that would be supportive now. This represents a fairly significant break out, and we believe that it opens the door to the 105 level. However, it makes sense that we could possibly go sideways in the meantime, as we recognize that the market may need to take a little bit of a rest after the recent airboat move higher.
The market also finds itself looking at the interest rate differential between the two currencies, it as they should continue to favor the Americans. With that, we believe that this pair eventually goes higher, and that the 105 level will eventually be touched. We recognize that there is a lot of noise between here and there, so we could get pullbacks from time to time, but those should end up being buying opportunities. Because of this, we feel that this market does eventually break out to the upside as well as the Bank of Japan will continue to expand its monetary policy, sending the value of the Yen down. Ultimately, we are buyers on pullbacks, as well as breakouts.
Above the 105 level, the market should head towards the 110 level, which is our longer-term target. We believe that by the end of the year we should reach that area, but expect a lot of choppiness as this would be a trend reversal. It takes some time to build a base large enough and significant enough to bottom out a market, and that of course is one of those things that is typically only noticed in hindsight. However, this pair does have a history of being very volatile when changing directions, and we feel that this is going to be more of the same.
We have no interest in selling this pair at all, and will only buy it, but do recognize from time to time it might be difficult to hang onto the position. Because of this, we are entering with small positions and adding as we go along.
