The USDJPY pair initially fell during the session on Monday, but as you can see ended up bouncing enough to form a hammer by the end of the day. This hammer of course suggests that the markets going to go higher, and as a result we believe that the move higher should continue to the 103 level at the very least, as it is the next major resistance area. This area caused a massive fall late in April, so getting above there could be a bit difficult. Ultimately though, we believe the market continues to go higher.

The next major resistance area is the 104 level, but even that seems to be only somewhat resistive. We believe that the market can more than likely break above that level and head to the 105 level once we approach the region. Pullbacks above the 103 level should be a sign that the market should offer us plenty of buying opportunities time and time again.

Ultimately, we believe that this market will contend for one of the better longer-term trades going forward as well, as the US interest rate should continue to rise given enough time. After all, the Federal Reserve has stopped much of its operations, thereby allowing the actual market to dictate interest rates in the bond markets.

The Bank of Japan continues to interfere with the interest rate and exchange-rate of the Japanese yen, thereby in our opinion we feel that this market should continue to go much higher. Ultimately, we believe that the market has bottomed for the long-term, and that we could see a return to the old “carry trade” days. If that’s the case, this will be one of those marketplaces that we love, as you simply buy every time it falls.

We are short of the Japanese yen against other currencies as well, but this particular pair has been a bit hesitant to breakout to the upside because of the lack of expansion of interest rate differentials. However, it’s only a matter of time before basic market principles come back into the fold, and that should push this market higher.

Editor’s Note: Equity investors/traders can use the Currency Shares Japanese Yen Trust (FXY, quote) ETF to take positions in the yen without a FOREX account.  The ETF looks to track the price of the Japanese Yen (USDJPY), minus ETF fee. The fund seeks to reflect the price of the Japanese yen (USDJPY) with the shares representing a cost-effective investment relative to investing in the FOREX market.

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