The USD/JPY pair initially fell on Thursday, testing the 102 level as support. This area brought in enough buyers though that we managed to see this market form a nice-looking hammer, which of course is a buying opportunity. It was buying opportunity since the market looking for the 103 level as far as I can tell, which should be the next resistance area. Above there, the 104 level will cause issues as well, with the 105 level ultimately being the target.
Don’t get me wrong, I think of this market will continue to grind higher, but it will be choppy. Typically the case in a market is trying to bottom long-term, which is what I feels going on in this particular currency pair. I am short of the Japanese yen against several other currencies, and watch this chart with great interest as it is the main driver of what happens with the Japanese yen overall.
Interest rate differentials will widen.
Sooner or later, the interest rate differentials will widen between the two countries bond markets, and with that the US dollar should come out on top. Although the Federal Reserve has recently stated that perhaps stimulus is still needed to support the jobs market, they are nowhere near adding to quantitative easing and at the same time the Bank of Japan is most certainly interested in going so and as a result interest rates in the land of the rising sun should continue to fall and be less attractive to currency traders.
That being said I think that this market should continue to be one that you can buy and hold, but you’re going to have to be very patient. I look at this more or less as a multi-year trade, and with that buyers should continue step in every time the market dips for any significant amount. At the moment, it appears that the “floor” in this market is at roughly 101.25 or so. I will continue to buy support of candles and will buy on a break above this hammer as the market continues to grind its way higher.
