The USD/JPY pair fell during the bulk of the session on Thursday, but as you can see a found enough support below in order to bounce and form a hammer. This hammer shows that the 102 level continues to be supportive, and as a result I feel that this market will eventually break out to the upside. That level that IAC as a trigger is the 103 level, so a daily close above that and I am more than willing to start buying this pair again.
I believe that the interest-rate differential between the two countries will continue to widen, especially considering that the Federal Reserve has now started to taper off of quantitative easing. Simultaneously, the Bank of Japan continues to do almost everything you can to drive down interest rates, thereby weakening the Yen.
Long-term bottoming formation?
Looking at the past, I can see that this pair has bottomed down here several times. Most of the time it is a very choppy affair, so it would not be surprising at all to see that happen again. Back in the 90s, there was a time when this pair had bottom, but it chops around for months. That’s essentially what we been doing here, and by all means we should continue to go higher given enough time. That’s not to say it will be easy, and that there will be any pullbacks. However, I believe that if we can get above the 103 level, we would head towards the 105 level over the course of a couple of weeks.
The 105 level of course opens the gateway to the 110 level, which would be a significant move obviously. In fact, if this market is doing what I think it’s doing, this could be one of those “buy and hold” type of situations. I actually am short the Japanese yen against several currencies right now but pay a positive swap. I know it’s been a long time since you’ve heard the words “carry trading”, but we may be setting up see that happen yet again.
