The USD/JPY pair initially fell during the session on Monday, but bounced enough to form a hammer by the end of the day. The resulting candle suggests to me that the markets want to go higher soon. This market needs to clear the 99.50 area for me to start buying though, and until then I will be on the sidelines, unless of course we get a nice supportive candle on a pullback. Either way, I can’t see selling this pair.
One of the main reasons is the Bank of Japan. The BoJ has essentially declared war on the Yen itself, which is why I feel there will always be a bit of a bid in this market going forward. This market will have trouble falling for any length of time in one stretch, so this is a market that can be dangerous to short at times.
Fed and BoJ
The Federal Reserve and the Bank of Japan should continue to be the main factors in this pair. Obviously, there are technical levels that we have to pay attention to as traders, but I feel that the headlines and rumors will be the main factors in this pair going forward. However, I think that the Federal Reserve is much closer to tightening – or at least not loosening – than the Bank of Japan which has essentially just started the easing program it is on at the moment. Both are buying bonds, but I believe that the Bank of Japan has move room to move in that aspect, as the Japanese economy is almost exclusively an export one, as opposed to the nuances that are found in America that have different aspects going on at the same time.
I would like to see the 100 level broken to the upside on a daily close to be convinced of the move higher. The market could easily move to the 105 level after that, but I think this is a long-term move – not one that will be sudden. However, if the Federal Reserve announces that the QE programs are shrinking, look out above!
