The USD/JPY pair fell initially during the session on Thursday, driving pretty deep to the downside. Having said that, we managed to find enough support off of the bottom of the triangle that the market has been working with to turn things back around and form a massive hammer. The hammer is focused on the 120 handle, which of course is an area that seems to be attracting the market again and again. A break above the top of the hammer normally would be enough to start buying, and we are willing to do so but only with small positions as we think the volatility will continue.

Keep in mind that during the session today, there will be a significant Final GDP quarter over quarter number coming out of the United States. This of course will have a significant effect on the US dollar overall, and very much so this market specifically. After all, this market is very sensitive to interest-rate differential and of course risk appetite.

GDP

The idea of course is that if the GDP numbers come out fairly strong, it’s likely that the Federal Reserve will be moving closer to interest-rate hikes. The one thing that I do know is that the Bank of Japan is light years away from raising interest rates themselves, so quite frankly it’s difficult to imagine that the interest-rate differential is going to tighten up anytime soon. I believe that the industry differential should continue to spread apart, just as the rest of the world does. With that, it makes sense of this pair goes higher over the longer term.

However, that’s not to say that there aren’t a couple of levels worth paying attention to, because of course there are. I believe that the 122 level above is going to be significant resistance, and it’s not until we get above there that we will be a bit more “free and clear” to go to the 125 handle. I have no interest in selling this pair.

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