The USD/JPY pair initially fell during the day on Tuesday, breaking down to the 123.90 level. However, we found enough support in that region again to turn the market back around and form a nice-looking hammer. The hammer of course is one of our favorite signals to start buying, and the fact that we are at the bottom of the recent consolidation area also suggests the same thing. Is because of this that we actually like buying this market on a break of the high from the session on Tuesday.
We believe that this market is trying to build up enough momentum to finally break free of the 125 barrier, and continue the longer-term uptrend higher. With that, we feel that this market will not only break higher, but in the other offering a “buy-and-hold” type of situation. We believe that the USD/JPY pair will continue to be a market that you can buy on dips, as well as add to a massive core position given enough time. In fact, this is one of those situations that could make a few careers, if played correctly.
When you look at the two central banks, you have poor opposites essentially. In Tokyo, you have a central bank that is looking to buy more and more Japanese Government Bonds, driving down interest rates in the bond market, which drives down demand for Yen. However, in the United States you have the Federal Reserve which looks ready to raise interest rates sometime this year. While that has been priced into this marketplace, the reality is that the Bank of Japan is probably years away from raising interest rates. Because of this, we believe that this market will continue to go higher over the longer term.
Unfortunately, this pair does not pay much in the way of swap if any at all, depending on your broker. Back in the old “carry trade” days, you could simply sit around and be paid to wait. You don’t have that luxury these days, at least not at this point. Given enough time though, that could be the case again. We have no interest in selling.
