The USD/JPY pair continued to jump higher during the Thursday session as the world focuses on the Bank of Japan and what it is going to do next. This pair has been essentially reacting to the new mandate that the Bank of Japan will find itself having, namely keeping an inflation target of 2% and trying to devalue the Yen.
The fact that we broke over the 84 handle was very significant to me and as a result I have been long of this pair for a while. I think that this market will more than likely try to make it to the 90 handle, but it may be a bumpy ride. The US “fiscal cliff” could cause a significant pullback, as is pair is somewhat risk sensitive. Because of this, I think that you will eventually get the pullback needed to get into this pair if you are not already long.
Looking at this chart, the gap that formed after Christmas cleared the 85 handle with ease. Because of this, I think that a pullback in some type of knee-jerk reaction to that level would be very welcome to the longer-term buyers of this market. In fact, I have already move my stop loss up in order to take advantage of the gains that I have already had, as well as keep my powder dry for buying this pair again close to the 85 handle.
Fiscal Cliff
The “fiscal cliff” is the one monkey wrench waiting to happen. If it weren't for that, this pair would be a one-way ride to the 90 handle at the very least. I think that this is going to be one of the best trades going forward for 2013, but we need to get past this nonsense first.
Late in the Thursday session the congressional leaders proved that they couldn't speak civilly to each other, and that they are still miles apart. The markets will sooner or later punish these people by selling off and forcing their hand. There could be a possible vote late this coming weekend, but so far we have seen absolutely no reason to think that they will come together and fix anything without being forced to.