The USD/JPY pair is currently one of my favorite trades. I'm already long of this market, and am looking for reasons to become even more so. During the Wednesday session, I may have gotten that signal. This is mainly because we fell during the larger portion of the session, but bounced off of the 81.50 support level in order to form a hammer.
As most of you know, the Bank of Japan is currently working against the value of the Yen. It appears that the opposition party is about to take over again, and one of their tenants going forward is an inflation target of 3%. There is absolutely no way to achieve this for the Bank of Japan except to print more currency. This should continue to weaken the Yen going forward.
Also, there are suggestions that the Japanese investors are starting to look abroad again for investments. More funds are starting to borrow money in Japan again, as they did back in the old "carry trade" days. Japanese banks can loan out money for next to nothing, and as a result they are one of the favorite destinations for large hedge funds to borrow money from.
84
For me, the real question is whether or not we will be able to break through the 84 level. If that happens, this becomes a buy-and-hold market for me, and probably for several years. I do think this will happen eventually, I just don't know whether or not it will happen on this swing. I like the fact that we have gone sideways a little bit as it allows more traders to get in from the long side. Quite often, when we have a strong move like this it becomes parabolic, and then eventually fails.
Breaking through the 84 barrier will take quite a bit of pressure. I like the fact that we are trying to get there over the course of just a couple of sessions, as this allows more and more traders to get involved. If this momentum can keep up, I get the feeling that this could become one of the hotter trades of 2013, and possibly beyond.