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The USD/JPY pair had a bullish session on Tuesday as the Federal Reserve Chairman's testimony in front of the United States Congress gave no hints of imminent quantitative easing. This pair has been for a long time simply a debate between which central bank is going to ease more and as it looks like the Fed is ready to sit on its hands for a least a little while longer, and make sense of this pair rose over time.
It should be stated however that we see a lot of resistance between here and the 80 handle, and as such would hesitate on taking fresh longs at this point in time. Once we break above 80, the 80.60 level is the next massive hurdle. Above that, as we have been stating for a couple of weeks now, is the trigger for longer-term trades. We think if we can get above that level, we could see the 84 handle and relatively short order. It is above 84 that we see this as a multi-month, if not multiyear trade.
The bearish case for this pair is very limited, not necessarily because of anything against the Yen, but rather the actions of the Bank of Japan over the last year or two. They have become increasingly aggressive against the value of the Yen lately, and as such we are not comfortable buying the Yen under any circumstance. While we do recognize the fact that this pair could fall further, we think that the 78 handle is where the Bank of Japan gets rather aggressive against Yen appreciation. It is with this in mind, that we only buying this pair because we simply do not want to take on the central banks.
The candle for the Tuesday session was somewhat encouraging, but it wasn't as big as the day before so by all accounts, it is technically an inside candle. Again though, we are not selling, so is simply we are looking to buy. If you are more aggressive you can go ahead and buy now, knowing that there should be a floor beneath you, but upwards mobility may be something that takes some time in this pair.