The USD/JPY pair fell during the Wednesday session as the pullback continued. However, we got a significant bounce off of the 87 handle, and the site of a previous swing high. The resulting candle of course was a hammer and then of course is a bullish sign. The real question now is whether or not the upward momentum can continue from this point or whether we pullback in order to give the market a rest for a little while longer.
Ultimately, I don't think it matters if you have a long enough time frame. If you are looking at investment, I can think of very few things are going to be better than going long anything that looks like XXX/JPY. However, timing is important in the Forex markets because of the leverage, and as such we need some type of signal.
Looking at this hammer, it becomes obvious that a breakout of the top of this candle sets us up for another run at the 90 handle. If we can get above the 90 handle, this market should continue much higher as it is a fairly significant large round psychologically important number. In fact, if we can get above 90 I fully expect to see 100 before it's all said and done. I also think this will happen before the end of 2013.
This has happened before
If you look back to 1995, the Bank of Japan declared war on the Yen back then as well. The market looks very similar to what it did back then. The market had a very choppy several months in that particular time period, but eventually the Bank of Japan got its way. I fully believe that they will now as well. However, it should be stated that we are in the midst of a little bit of a "currency war", and as such there will be times will we go back and forth. I also believe that not only this pair will rise in reference to a sinking Yen, but we should see real fireworks in some of the commodity currencies against the Yen.
