The USD/JPY pair rose during the session on Friday, breaking through a significant amount resistance in the neighborhood of the 102.50 level. However, I am a little bit more confident of this move if we get above the 103 level, and certainly if we can get above the recent highs somewhere closer to the 103.50 level. Regardless, I am bullish of this pair longer-term, and the fact that we are trying to break out of this consolidation area does in fact make me even more bearish on the Yen, as I believe traders are simply getting bored with the idea of plane safety, rather than returns.
A move above the 103 level course opens the door way to the 105 level as far as I can see, which will be much more significant resistance in my opinion. I think we get above there as well, but we could need a couple of attempts to do so as momentum will certainly need to be in the favor of the buyers.
Central bank divergence.
The two central banks involved in this pair are on completely different past, as the Bank of Japan continues to engage in quantitative easing, which should essentially drive down the value of the Yen. After all, if investments in the Japanese markets are paying very little in the way of interest, the idea of course is that less and less people will want to invest in the Japanese bond market, thereby making demand for Yen lower. On the other side of the Pacific, you have the Americans which are starting to taper off of quantitative easing, which should allow the bond market to pay a little bit more in interest, thereby driving up the demand for the US dollar. Ultimately, I believe that’s what will drive this market, and as a result we should hit the 110 level sometime between now and the end of the year. Nonetheless, I see no reason whatsoever to sell this market, and I believe that pullbacks along the way will continue to be buying opportunities. Full disclosure: I am short of the Japanese yen against several other currencies.
