The USD/JPY pair finally broke above the 125 level during the course of the session on Tuesday, but wasn't exactly impressive in the breakout. No mind though, I do believe that this shows the market is willing to put in the effort to finally break out and continue going higher. I am a buyer of this pair time it pulls back it shows any type of support, and of course any type of break out to the upside. I believe that it’s only a matter of time before the US dollar breaks out to fresh, new highs, and then heads towards the 128 level, and eventually the 130 level. I don’t have any interest in trying to sell this pair, simply because I see far too much in the way of support below. I have an uptrend line on the chart, and of course she several horizontal support levels, especially near the 123.50 region.
Central bank divergence
The Federal Reserve is looking to raise interest rates later this year, while the Bank of Japan continues to flood the marketplace with liquidity. They are not only buying Japanese Government Bonds, but they actually step into the stock market in buying various ETFs in order to lift the Nikkei 225 from time to time. In other words, this is a central bank that will do whatever it needs to do in order to drive down the value of the Yen. Japan is highly sensitive to exports, and as a result they need a cheap currency. With that in mind, I think that the Bank of Japan will do everything that it takes in order to make sure that happens. I don’t necessarily believe that the Federal Reserve is overly concerned about the value of the US dollar against the Japanese yen at the moment, because quite frankly the Americans don’t even compete with the Japanese on most fronts anymore. Ultimately, I believe this pair is one that you can buy and buy again.
