USD/JPY Forecast September 28, 2017, Technical Analysis

The USD/JPY pair continues to be volatile, as we had initially rallied during the day on Wednesday, but found the 113.25 level to be a bit too resistive. We have pulled back a bit, but I think there’s plenty of support extending down to at least the 112 level that eventually the buyers will return and send this market much higher. The longer-term consolidation has a significant amount of resistance at the 114.50 level above, and I think that the market will eventually go looking to test that level. Because of this, I am a bit cautious but I also recognize that there is plenty of reason to think that the Federal Reserve shrinking its balance sheet should continue to drive this market higher. Beyond that, the bond trade favors the US significantly, as rates are rising. That is a major driver of where this currency pair goes, and as tenure rates rise, typically this pair does as well.
Buying dips
I continue to buy dips, thinking that the market should offer profit for those who are willing to do so. Ultimately, this market should continue to be noisy, but I think eventually we will be able to break above the 115 level, barring some type of geopolitical risk, such as North Korea. Ultimately, I believe that the buyers are trying to make a floor in this market, but that quite often takes months to accomplish. Unfortunately, in the meantime we need to deal with a lot of volatility as the markets try to make up their mind as to which direction is the proper one. Currently, if we can stay above the 112 level I think there is going to be plenty of interest and that builds my thesis for much higher exchange rates.