The USD/JPY pair tried to rally during the session on Friday, but lost about half of the gains by the time we closed in order to form a bit of a shooting star. However, the shooting star is sitting right on top of significant support in the neighborhood of 101.250 or so, and as a result I don’t necessarily think that it’s a decent selling opportunity. In fact, if we break the top of the shooting star that would in fact be a strong buying signal. A break above the top of the negative candle from the Thursday session would also be a positive sign, as the market could go to the 103 level at that point. I believe that ultimately we will break above 103 as well, and head towards the 104 level, followed shortly by the 105 level.
You can barely see this on the daily chart, but there is a red trend line that has been forming over the longer term, which is a bit below where we are right now. Quite frankly, I see no reason to think that the consolidation that we have been in recently is going to end, although ultimately I do think this market breaks out to the upside. There simply far too much in the way it interest-rate differential when it comes to these two currencies, especially with the Federal Reserve starting to tighten its monetary policy.
Don’t forget, the Japanese will get what they want sooner or later.
The Japanese should get what they want sooner or later, and that is a weaker Yen. You are already starting to see it in other currency pairs, and as a result I am short of the Yen against many other currencies, mainly as an interest-rate differential play. Yes, much like the old “carry trade” days. However, that is the normal state of the Forex markets, and you should never forget that. I believe that the US dollar will continue to climb against the Japanese yen given enough time, but there is enough out there in the way of uncertainty with the labor market in America to keep this pair somewhat cautiously optimistic and not necessarily wildly so.
