For my money, this is probably one of the most interesting Forex pairs out there right now. After all, the 125 level is a major psychological resistance barrier, and the fact that we have broken up above it seems like a signal that the longer-term trend is going to continue to be to the upside. At this point in time, this is a very easy trade, as the US dollar is propelled by the fact that the Federal Reserve is going to raise interest rates in September. At the same time, you have the Bank of Japan which seems very unlikely to tighten its monetary policy anytime soon, probably years from now.
As long as that’s the case, and interest rates separate as they have between the two countries, this trend will continue. After all, interest rates are creeping up in the United States, while they are essentially nothing in Japan. Because of this, bond traders have no interest in buying Japanese Government Bonds. This makes money flow into other countries such as the United States.
Buy on the dips
This is easy for me, I am simply buying this pair time it dips. Every time we pullback, I am adding to a longer-term position as I am trying to build up a humongous position for the longer-term move. I believe that we go higher over the course of several years, and that 130 is just the next target. I believe that 128 will offer a little bit of resistance, because it seems all but assured at this point in time that we will break through their given enough time.
I believe that even if we fall back below the 125 handle, there is a massive amount of support at the 124 handle. This is predicated upon the fact that we had consolidated so obviously between the 124 level and the 125 handle, at least until we broke out on Friday. This is without a doubt one of my favorite trades, buying the US dollar and selling the Japanese yen.