The USD/JPY pair initially went higher during the course of the day on Thursday, but found enough resistance near the 124.50 level to turn things back around and form a bit of a shooting star. It isn’t quite a perfect shooting star, but probably more of a neutral candle with a slightly negative bias. Nonetheless, I am not a seller in this market and I think that any pullback should bring in quite a bit of buying pressure. After all, it will be considered to be value in the US dollar going forward.
I believe that there is a significant amount of support below, especially near the 122 handle. Perhaps we have to pull back a little bit in order to build up enough momentum to break above the 125 level which of course is the next major area in focus. The US dollar should continue to strengthen against the Japanese yen as this market is indicative of interest-rate differentials between both the United States and Japan. After all, the Federal Reserve is all but said and done, and there will be an interest-rate hike sometime this year, while the Bank of Japan is probably years from doing that.
Buying pullbacks
My strategy in this pair has been the same for quite some time: simply buy pullbacks. This is much like the carry trade days, where we would go sideways for a while and then then suddenly shoot higher. I think this continues to be the way this market operates, and as a result it will be very reminiscent of 2004. Unfortunately though, there isn’t much in the way of swap to continue to build your account higher.
In fact, I have no scenario in which I am willing to sell this market, and I believe that once we get above the 125 level, we will then head to the next 500 pips level, which of course is the 130 level. There is no scenario in which I sell because the industry differential will continue to favor America well over the Bank of Japan as it is more than likely going to continue to add liquidity to the marketplace.
