By Sean Hyman

"Change is coming to America", Obama said. Well, while I'm not so sure those "changes" are the best...however, I do want to talk to you about another change that I think you will like. It's the "change" in the 3 year-long downtrend in the USD/JPY pair! Check it out below.

 
When a downtrend line is breached, this is what it's really telling you...

When a downtrend line is broken, it means that the buyers have recently gotten more aggressive and have finally overcome the short sellers. This one is huge in my eyes because the short sellers have controlled this pair for THREE years back to back! Now that's something. So when that "stronghold" is finally broken, it's a big deal.

Why is the trend turning up now? I believe it's because of the belief that the rising inflation in America will eventually have to be dealt with. The Fed will have to attack inflation by eventually raising interest rates.

So I think that the investors in the market feel that rate hikes are near enough to where they can start to buy in. Oh, it could still be some months before the hikes happen, but with the trend turning up, they can gain some appreciation on their position before rate hikes ever start.

Inflation vs. Deflation!

One thing is for sure, with Japan still in "deflationary mode" and the U.S. in "inflationary mode", the U.S. will hike interest rates well before Japan. Also, when Japan hikes rates, it's not usually by any great margin. When the U.S. finally gets on board and starts hiking, they usually have to do quite a few interest rate hikes before they get inflation under control.

Also, it is my opinion that the Fed is already behind the curve on this one (but really what's new there?).

Therefore, it will almost ensure that inflation lasts longer than it should have to. It almost certainly assures that the Fed will have to hike more and hike rates longer than they'd like to as well.

So when you combine all of this together, it brightens up things for USD/JPY.