The USD/JPY pair has been very parabolic over the last several months, going all the way back to the beginning part of 2012. That being the case, I feel that this market needs to take a little bit of a rest. If you look at the monthly chart attached to this article, you can see that the 123 level was the high bank in June 2006. I believe that area should serve as quite a bit of resistance, as market memory of course will come into play. That being the case, it makes sense that the pullback that comes could be a bit strong.

However, if and when this pair pulled back, I think that it gives an opportunity for the astute trader to buy the U.S. dollar at a cheap level. When I look around the Forex markets, I can see that the U.S. dollar looks a bit overextended, and as a result a pullback should be coming relatively soon. I don’t think it’s right away, but as we get into the back half of the first quarter, I believe that we will start to see a little bit of a correction.

Longer-term uptrend should continue

I still believe that longer-term uptrend will continue, but I think the pullback is necessary in order to break out. I think that the market will probably find support somewhere near the 115 level, an area that has already proven itself to be supportive previously. Even if we get below there, I believe that the 110 level will be supportive as well.

Ultimately, I believe that the U.S. dollar will continue to outperform the Japanese Yen, as most currencies well. It’s just that we have gone way too far in way to short of a time frame for me to be comfortable with a continuation of this parabolic action. Don’t get me wrong, I’m not interested in selling this pair at all. I think initially during the quarter we will see continued bullishness, but ultimately we should be able to get into this pair at much lower levels.