The USD/JPY pair went back and forth on Friday, but the market still looks like it wants to go higher based upon higher time frame charts such as the weekly. Having said that, I'm still bullish of this market although there is the possibility that we get a little bit of a pullback here. What I find most interesting is the fact that we have closed above the 100 level, which of course is a psychologically significant number, as well as resistance. While we haven't necessarily smashed through the remainder of resistance, there is enough here for me to think that I can only buy this pair going forward.
I see one of two possibilities happening in the near-term: either we break the top of the neutral candle on Friday and start buying, or we buy pullbacks to show signs of support. Either way, that is the only direction I am going in this market, up. After all, this is a battle between two central banks, and it appears that the Federal Reserve is much closer to cutting back on quantitative easing than the Bank of Japan will ever be.
Don't underestimate the Bank of Japan.
It is at your own peril that you underestimate the Bank of Japan and its ability to work against the value of the Yen over the longer term. All one has to do is look back to the 1995 action in this pair to see exactly how this could play out. Also, you have to keep in mind that the jobs numbers in the United States are starting to perk up a little bit, and that is the one major hurdle that the Federal Reserve will have to overcome in order to start cutting back on quantitative easing. That being the case, I feel that it's only a matter of time, probably early 2014 and we will see the bond buyback program be cut back just a little bit by the Federal Reserve. I still think we are a long way away from normalized monetary policy, but this is a relative play, don't forget that.
