The USD/JPY pair fell hard during the course of the session on Thursday, but as you can see found enough support at the 118 level to turn things back around and form a nice-looking hammer. The hammer has a very long wick, and as a result I believe that quite a bit of bullish pressure entered the market. With that being said, I believe that it’s only a matter of time before we break out to the upside as the trend is most certainly favoring that type of move.
Also remember that the central banks are completely polar opposites at the moment, as the Federal Reserve has left quantitative easing and the Bank of Japan still looks likely to add to the liquidity measures if they feel the need to. After all, the Japanese economy is based mainly upon exports, so we do not see a healthy Japanese economy with a strong Japanese yen, which is something that they have had to deal with for some time now. I think that the central bankers in Tokyo will do whatever it takes to push this pair higher.
Risk appetite
If you keep in mind that this pair also functions as a barometer for risk appetite as well, it does look like the stock markets are getting ready to head higher again during the Friday session. Because of that, I think that this pair does break out to the upside but I am going to be careful and wait into we get a move above the 120 level before I actually put money in this market. After all, this does tend to be a fairly volatile currency pair, and I don’t see that changing anytime soon.
Any pullback at this point time will more than likely find buyers again and again, and I believe that will continue to be the case for the foreseeable future. Once we do get above the 120 level, I think we head to the 122 level, and then eventually the 125 level which is my longer-term target.
