USD/JPY Daily Outlook March 14 2012

By: Christopher Lewis

With the Bank of Japan desperately doing everything it can to weaken the Yen, this pair has frustrated many bulls over the last several years. However, we have recently seen the pair rally and break through a couple of serious barriers. The bulls seem to be taking over, and it is my contention that the pair is actually going through a trend change.

It is pretty rare that we get to be involved in the start of a trend change, but I believe that is exactly what this pair could be offering. On the attached chart, I have included three different moving averages, the 200, 100, and 50-day EMAs. The main reason for this is that these three moving averages are all commonly used by trend traders. Trend traders tend to hang onto a position much longer, and as a result tend to be much slower to change as they will wait until these crossover – meaning they are the very last to leave.

The 50 and 100 day EMAs have now both crossed over the 200 day one, and this shows that the last vestiges of a trend change have just been seen. This pair is without a doubt changing the trend in my mind because of this, and the breaking of a massive trend line being broken as well. The 80 level has also been a massively resistive spot, and the fact that the two previous Bank of Japan interventions couldn’t break it was a testament to how strong it really was.

Buying on the dips.

Because of this recent move, I am willing to buy the pair on dips, and plan on building a massive position over time. The main reason I do this is that the pair has a long history of being unidirectional. The days of the carry trade may be coming back, as the Bank of Japan continues to kill off the Yen. Granted, the swap on the USD/JPY pair is only marginally positive, but the Yen in general will continue to suffer against many currencies as the swap rates come back into play. However, the USD/JPY pair has the advantage of also including the Dollar, which of course is the ultimate safe haven. With that being said, I am buying the pair every time the pair falls and shows supportive action. The 80 is my absolute floor in this pair, and as long as we are above it – I am not selling at all.