USD/JPY - Are Happy Times Here Again?
After last Friday’s Non Farm Payroll report came in better than expected, the USDJPY was the strongest mover of the pairs, gaining 250 points in a few hours. At the same time, both the Pound and the Euro toppled from their monthly resistance levels, making it a pure dollar move across the board. This is a strong indication that there is real dollar buying with the intention of investing in the American economy because normal risk co-relations were violated. Even if this buying is overly optimistic, a solid follow through move is very likely as sideline money will be itching to get in for fear they are missing the recovery.
The USDJPY has broken above the 100 DMA, 200 DMA, and a weekly downtrend line, which is a strong bullish signal. The former highs are in the 95.80 area and we expect stiff support there. Real buying ought to protect our stop, and anything in the 95.00’s will probably be considered a bargain. The first target is the four hour pivot zone at 97.15, and the second target is a break above the recent highs through the 98.00 figure.
Sentiment is the true wild card. In the hours leading into the NFP report, USDJPY eased lower on the expectancy of risk aversion. The market was clearly too short and the result was a tremendous short squeeze. Because of the low open interest, new money will now have a stronger influence on direction than positions already in the market. This is how bubbles are created and warns of coming maturity in a move. Should new money come in and follow this move through with all the hype of this long awaited “recovery,” we will profit from the ride, but watch out for a reversal because it will then be heavily long and the new money will have to cover.
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