The USDJPY pair initially fell hard during the session on Wednesday, dipping below the significant 101 level. That level has been rather supportive over the last several weeks and as a result we were a bit surprised to see that level broken through.

However, by the end of the day we ended seeing the market bounce enough to send the market back above the 101 level, and more importantly form a nice-looking supportive hammer. With that, we believe that this market is ready to continue the consolidation that we have seen for some time and we believe now that the market will more than likely head back towards the 103 level.

The state of the hammer is just about perfect, so of course we do like the idea of breaking the top of it being a signal to start buying. If that happens, we think that there is a bit of resistance at the 102.50 level, but ultimately that level should probably give way to the 103 level. A move above there though, and then things get truly interesting.

Above that area we think that the market will head to the 104 level, and then ultimately the 105 level. Pullbacks going forward should continue to be buying opportunities if we do in fact get a move higher. With that, we are in “buy only” mode still, even though we had a significant attempt to break down.

We see the 100 level below is massively supportive as well, so quite frankly it’s just going to be difficult overall to short this market anytime soon.

We believe that the market will be well supported every time it falls, and with the interest rate differential getting ready to start favoring the Americans again, we believe that ultimately this pair is forming a large base in order to continue going higher, probably for the long-term more than anything else. We believe that for the next couple of years you probably will be able to make money buying this pair every time it dips, and that will be especially true later this year.

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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