The USD/JPY pair broke out to the upside during the session on Tuesday, clearing the 102 level. This is a minor resistance area, but it is a good sign that the market could go higher. I believe that now that we are above the 102 level, we should immediately try to reach the 102.50 handle, and then ultimately the 103 level. On top of that, I am bullish of this pair longer-term but I think it’s going to come down to the FMOC meeting minutes they come out this week to really determine whether or not the buyers can pick up traction at this point.
We know that the Bank of Japan is trying to loosen monetary policy to extraordinarily accommodating levels. However, the Federal Reserve is a little bit more of a mystery in the sense that they have in fact tapered off of quantitative easing a bit, but haven’t exactly been convincing as to their intentions going forward. The employment situation in the United States continues to cause a bit of a problem, and with that it’s difficult to imagine that the Federal Reserve is going to suddenly cut off of quantitative easing and start normalizing rates. But at the same time, we have had mumblings of that out of some members. In other words, as the Federal Reserve has promised to become a much more transparent organization, they have actually gotten much murkier.
Watch the bond markets as per usual.
One thing that I know about markets, is that the bond markets tend to be the “smartest” markets out there. They typically see things ahead of time, and will lead other markets going forward. This is especially true with the USD/JPY pair, and the 10 year note out of the United States. If the interest rate in the United States rises, typically this pair will go higher. Needless to say, the opposite is true as well, so always keep an eye on that chart. There are other things that can move this market of course, but this is one of those longer-term and more reliable correlations that I like to use.
