The USD/JPY pair initially fell during the course of the day on Tuesday, but found enough support below the 109 level to turn things back around and form a hammer. Every time this market drops, people step in to start buying. Is because of this that although we would love to see a significant pullback in order to take advantage of perceived value, we may not get that opportunity. It seems that the market is destined have the 110 level soon, an area where we would expect to see resistance. Ultimately though, we think we will break out above that area but need to see some type of pullback in order to start risking money in what is obviously a parabolic market at the moment.
The pair should continue to be bullish going far out into the future, as the 105 level below is will we considered to be the “floor” at this moment. The 107 level below is also very supportive, and quite frankly we would feel much more comfortable going long of this market at one of those two areas. If we don’t get that opportunity though, we will have to take the trade as it comes, “paying up” for the US dollar.
Every time this market dips, we believe that there will be buyers willing to step into the market and support it, especially considering that the central banks are so diametrically opposite of each other when it comes to monetary policy. After all, the Bank of Japan will continue its very loose monetary policy going forward, while the Federal Reserve continues to taper off of quantitative easing. With that being the case, the market should continue to favor the US dollar as bond yields are higher in America than Japan.
The 110 level will be resistance, but we think ultimately this market will continue to go higher, and this is just the beginning of a multitier uptrend, much like the former “carry trade” days that we used to enjoy in the Forex markets. With that being said, we have no interest in selling whatsoever.
