The USD/JPY pair did very little during the session on Monday, as we continue to meander just below the 109 level. The 109 level offering resistance is a much of a surprise, because quite frankly if you look the charts we are parabolic to say the least. The US dollar has been favored over several other currencies around the world, but the Japanese yen has been exceptionally week versus the greenback.
If we do get a pullback from here, I suspect that the 107 level will be supportive based upon the fact that we have had some clustering there in the past. Below there, the 105 level is supportive as well, as it was the scene on the previous breakout. That is going to be my strategy going forward, simply waiting for this pair to pull back so that I can start buying again at a lower level. Is essentially getting the US dollar “on sale.”
Central bank divergence.
The central banks of both of these currencies are moving in opposite directions. This is exactly what we like to see in the Forex markets as it makes the fundamental situation very obvious, as longer-term money flows towards higher interest rates. We see higher interest rates in the United States, as opposed to Japan. In other words, this is almost a “no-brainer” type of trade as the market continues to follow other forms of capital into the United States.
Ironically, if we begin to see a bit of a “flight to safety” come into the marketplace, this pair will actually fall as the Japanese yen is considered to be even more of a safe haven currency than the US dollar most of the time. With that, we have to worry about headline risk, but ultimately I think that this market is going to aim for the 110 level, and actually break above there given enough time. In fact, I think the Japanese yen is going to selloff massively for most of the rest of this year. With that, I have no interest whatsoever in selling this pair.
