The USD/JPY pair initially tried to rally during the course of the day on Tuesday, and actually broke to a fresh, new highs. However, the market struggled and turned back around to form a shooting star. The market looks as if it’s ready to continue grinding away just above and below the 115 level, an area that we think is vital for the future direction of this marketplace. The area was originally our target for the end of the year, and we have obviously broken above it. With that being the case, the shooting star suggests that we are going to pull back a little bit but that in our opinion is simply consolidation waiting to happen. Supportive candles below is what we are looking for in order to start buying again.
We also like buying this pair on a break above the top of the shooting star, as it would show a continuation of the massively supportive and bullish action that we have seen. Any pullback from here should find plenty of support at several different levels, with the 110 level been the absolute “floor” in the marketplace. A supportive candle suggests that people who have been missing out on the uptrend have noticed it, and felt the need to get involved. That’s exactly what continues a longer-term uptrend, and as a result it would be a bit of a self-fulfilling prophecy at that point in time.
Above the current consolidation area, we believe that this market probably goes to the 118 level next. It takes a little bit of time, but we do think it happens after all. Keep in mind, the Federal Reserve has said it is leaving the quantitative easing game, while the Bank of Japan continues to step on the accelerator and do everything you can to stimulate the Japanese economy, which is essentially export driven and therefore needs a very weak currency. With that being the case, there is no scenario in which we are comfortable selling this market, because we believe that the next move is pretty much set in stone, and that it’s only a matter of time before we reach much higher levels.
