The USD/JPY pair rose during the session on Monday, as the 101.25 level has offered support yet again. It can see clearly on the chart that the area has been supportive, and it now appears that every time we rally we continue to go just a little bit higher. With that, I believe that this market will rally again, and that it will go higher than it did last time. However, the 102 level is going to offer a little bit of resistance, I think the real resistance start somewhere closer to the 103 handle.
The 103 level offers the market heading to the 104 level given enough time, and then eventually the 105 level will be targeted. I ultimately believe that we will go above there as well, but recognize that there is quite a bit of resistance at that handle as it is a large, round, psychologically significant number on the longer-term charts as well.
Interest-rate differential should continue to drive this pair higher over time.
Interest-rate differential between the two currencies should continue to expand over time. After all, the Federal Reserve is continuing to tighten its monetary policy while the Bank of Japan seems to be more and a loosening mode. In fact, I believe that we will now see the Bank of Japan at even more stimulus to its plans as the value of the Yen has been stubbornly high overall.
Because of this, I believe that this is going to be a longer-term buy-and-hold type situation eventually. This will certainly be true once the Federal Reserve actually raises interest rates, which is probably farther away at the moment than some would believe. However, I do believe that ultimately that does happen, and that will send this market higher as the so-called “carry trade” comes back into play. I am short of the Japanese yen against several currencies right now, but the US dollar does not happen to be one of them. After all, a positive swap is which are looking for on a trade like this, you don’t have that yet in this market, but you could see appreciation soon.
