The USD/JPY pair fell during the beginning of the session on Monday, but as you can see the 104 level has offered enough support to form a hammer. This hammer is the second hammer that we have seen in the last three sessions, and as a result it looks like the market is trying to find support in this general vicinity overall, and I do believe that we are going higher given enough time.
That move may take a while to get here though, as tomorrow is Christmas. However, I believe that over the longer term the pair is going to go much higher, and therefore I’m perfectly comfortable buying and with a small enough position, pretty much anywhere on the chart. I am trying to build a longer-term core position that should continue to build up over time, and ultimately last for years. This pair has a history of grinding higher like this for months on end, as it was the original “carry trade.” I believe that we could possibly be heading into that phase again, as the Japanese yen is being sold off against just about everything.
Pay attention to the bond markets, as well as jobs numbers.
Pay attention to the bond markets in both the United States and Japan. The 10 notes in particular are what you need to be paying attention to, as this market typically sends money in the direction of whatever country is paying more on the ten-year note. With the Federal Reserve starting to pull back from its bond buyback program, that will naturally make interest rates rise slightly, which should continue to favor the US dollar overall when it comes to this pair.
This will be supercharged if we can continue to get nice job numbers out of America. The last couple of economic indicators have been pretty good, and therefore the markets are starting to think that perhaps the Fed is entering its tightening cycle finally. If that’s the case, this should be a nice long-term buy-and-hold type of situation, just like we have seen time and time again. I would also suggest that buying pullbacks in this pair will be an excellent way to find value in the markets.
