The USD/JPY pair broke higher during the session on Tuesday, finally breaking out to the next move higher. Now that we have cleared this area, it’s very likely that we will continue to go much higher, although it will be choppy from time to time. After all, no currency pair can go in one direction forever. Ultimately, I believe that this market goes to the 120 handle, and probably quicker than we anticipate.
Any pullback at this point time will more than likely offer value in the US dollar, and be looked at as such. I think that the “floor” of this market has moved all the way up to the 112.50 handle, as it was the site of a gap from two weeks ago. Because of this, I think that any pullback between here and there should be a buying opportunity, and on the first signs of buying, I would add to my already sizable position.
I know I keep saying as, but I believe that the divergence between the two central banks is what is going to continue living this pair to the upside. After all, the US has the Federal Reserve, a central bank that is getting out of the quantitative easing game. It’s not that the interest rates are going to go much higher in the short-term, it’s just that the Federal Reserve isn’t going to be in the market buying bonds so the interest rates will rise on their own naturally. On the other hand, we have the Bank of Japan which continues to flood the market with liquidity, and that of course means that interest rates should lower in Japan, which is almost impossible at this point. In other words, there is no return on money. In that case, why on earth would you put money in the Japanese bond market?
Because of this, I believe that this market continues offer buying opportunities every time it dips, and I think that most of the world looks at it the same way. With that being the case, I am very bullish of this market overall.