USD/JPY Forecast October 1, 2014, Technical Analysis

The USD/JPY pair went higher during the course of the day on Tuesday, testing the 110 level again. That level has been resistive, and showed it strength again during the session. However, we believe that the 110 level will be broken to the upside eventually, and at this point in time short-term pullbacks will continue to be buying opportunities as we try to build up enough momentum to break out. Once we do, this market will enter another leg higher, meaning that it will be another “buy-and-hold” type of situation. Pullbacks at this point time all the way down to the 105 level are buying opportunities on supportive candles as far as we can see.

With the US dollar being the most favored currency in the world right now, there’s no way to short it against the Japanese yen, a currency that is actually been beat up rather significantly over the last several months. This is because the Bank of Japan continues to keep a very loose monetary policy, and seems likely to only expand that going forward. On the other side the Pacific, you have the Federal Reserve which of course has been tapering off of quantitative easing, which of course is tantamount to tightening.

The US economy is showing signs of strength again, and quite frankly the Japanese economy needs a weaker Yen in order to function well as it is so export related. The cheaper that the Yen end up being, the more exports there are. On top of that, it appears that the Bank of Japan is willing to do whatever he can to prop up the economy right now, and that means more quantitative easing in our opinion. As interest-rate differentials widen, money will continue to flow to the United States from Japan.

On top of that, the stock markets in the United States going fairly well, and as a result US dollars are being purchased in order to chases returns. At this point in time, we have no interest in shorting this market as we see it is a “one-way bet.”