USD/JPY Daily Outlook April 18, 2012

By: Christopher Lewis

The USD/JPY pair has been falling over the last two months in a fairly steady manner. However, it wasn’t that long ago that we saw this pair breakout above the 80 handle, which I suggested was a trend change in the making. It is through this prism that I look at this pair, as I notice several things happening at the same time in this market.

The pair had been given a boost by several factors this year. The Bank of Japan recently expanded its asset purchase program, and as a result saw the central bank buying Japanese Government Bonds hand over fist. This is in essence the same as printing Yen as they are buying the government debt with what amounts to nothing. Needless to say, this will certainly influence the value of the Yen as there are more of them in the marketplace.

The Federal Reserve also has failed to mention further quantitative easing, and as a result this should continue to keep the interest rate differential in the United States’ favor. This should continue the uptrend over time, as it becomes a simple matter of carry trade. However, one of the best features of the pair is that unlike the AUD/JPY, NZD/JPY, and GBP/JPY – the Dollar is a safe haven currency as well, so it will normally “lose less” than the others, as money will often go into the Yen and the Dollar, therefore slowing the decline of this pair. This is a stark contrast to the Aussie, which people will run out of when concern hits the market.

80

The 80 level continues to be the mark or line in the sand for me. As long as we are above the area, I only want to buy this pair. In fact, I think that the trend has changed, despite the pullback we have seen. Also, the 80 handle is right about at the 50% Fibonacci retracement level from the move higher. Also, the 200 day EMA is just below the 80 level as well. All of these things add up to me believing that the path of least resistance is up. With this in mind, I am completely comfortable with buying on any pullbacks, or a 4 hour close above the 81 handle.