The USD/JPY pair fell during the course of the session on Wednesday, testing the 119.50 level. This is an area that offered enough support to turn things back around and form a nice-looking hammer. The hammer is close to the top of the range from the last couple of sessions, and of course the consolidation area. If we can break above the top of the range from Tuesday, I believe that this market would then head to be 122 handle. In fact, that is my base case scenario at the moment.
I believe the pullbacks will continue to be buying opportunities as there is so much support for the US dollar in general. I also recognize that the Federal Reserve is years ahead of the Bank of Japan when it comes to the idea of tightening monetary policy. Because of that, it should continue to push this pair higher, ultimately heading not only to the 122 level, but eventually the 125 level. I also recognize that there are lot of longer-term traders out there that are starting to buy this pair again every time it dips, as it should represent these and value in the future.
Bond yields
The bond yields between the two countries continue to spread, and that of course should send the value the US dollar higher overall. After all, the Bank of Japan continues to buy massive amount of bonds while the Federal Reserve has stopped doing the same. This of course is the main driver in this pair at the moment, but I also recognize that it is a bit of a risk appetite influenced market as well. As long as the stock markets do fairly well, this pair will continue to have bullish pressure applied to it. I don’t really see the opportunity to sell this market, as there’s far too much in the way of support below, which of course culminates at the 118.50 level, and most certainly at the 115 handle for the longer term. I do believe that this pair goes higher.
