The USD/JPY pair rose during the session on Monday, slicing through the 103 handle. While this is in fact a bit of a breakout, I see a significant amount of resistance all the way up to the 103.50 level. If we can get above there, then I believe that this market searching really take off to the upside, heading towards the 105 level given enough time. That area should be significant resistance, but it is the longer-term target that I’ve had for a bit of time now.
With that being the case, I believe that a pullback could come simply looking for some type of addition to the momentum in order to go long. Any type of pullback now should attract buyers as people will more than likely recognize that there has been a bit of a breakout of the last couple of sessions, and as a result I think that is an excellent way to get into the marketplace.
Interest-rate differential should still favor the US dollar.
The interest-rate differential between the two bond markets should continue to favor the US dollar, simply because the Bank of Japan continues to meddle in the JGB markets in Tokyo. This drives the interest rates down, which of course makes the Yen less attractive as less people will try to get into the bond market. On the other side of the Pacific, you have interest rates in the United States increasing over time. Granted, they’re not great returns, but they are better than the ones you find in Japan, and that’s what matters: relative strength.
Going forward, I would expect a bit of noise between here and the 105 level, so pullbacks on the short-term charts might be the buying opportunity that many of the will be looking for. Nonetheless, I see a ton of support below, and as a result I have no interest in selling this pair. In fact, I believe that this market continues to find support all the way down to the 101 level, essentially making it a “buy only” market for me.
