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The USD/JPY pair rallied a bit during the Thursday session to bounce off of the 78 handle once again. This area looks to be very supportive, and as such we are more than willing to go long at this point.
Because of the Bank of Japan and its willingness to selloff the Yen, we think that intervention will be coming in one form or another if we get much lower. Is because of this that we are essentially using the Bank of Japan as a "backstop", and as such we think that this pair could be a decent buy at this point in time.
Certainly, we see the 80 handle as serious resistance and expect a fight at that level if we can get that high. However, we see the 80.60 level as being even more interesting as it would open up the floodgates to a run of another 300 pips or so. This could have us aiming for the 84 handle before it's all said and done. Looking beyond that, we think that breaking past 84 has us aiming for as high as 110 in the long run. This could in fact be a wonderful long-term buy-and-hold proposition if the right factors line up.
Remember, the Bank of Japan is easing, and the Federal Reserve is suspected to be easing again and this will make this a bit of a tug-of-war. However, if the Federal Reserve lays off of its easing stance, this pair will absolutely skyrocket as it suddenly becomes a very clear choice as to who is going to be more dovish. If this happens, we will begin to see a reaction very similar to the old "carry trade" that was in vogue a few years ago. This will simply turn this into a "buy the Dollar, sell the Yen" play that will reward traders over and over for months to come.
If we do manage to break down below the 78 handle, we will be looking for any signs of supportive action in order to buy this pair. The one thing that could get us to step away from this market is if the Federal Reserve does go ahead and crank out the easing. If that happens, we think that this pair could go as low as 75 before the Bank of Japan gets directly involved via intervention.