The USD/JPY pair is one that many traders are watching at the moment. The pair features two central banks that are trying to ease monetary policy in different ways, and as such this is a real race to the bottom, and it appears the Americans are winning. (If winning is actually a good thing.)
However, the Federal Reserve Chairman didn’t take the idea of more easing off of the table during the news conference this week. This sends a signal to the markets that it is alright to take as much risk as possible, and it is a way to punish bond holders into investing. However, he didn’t specifically say that easing was likely either. Because of this, there may be a surprise in store for market participants in the near term.
On the other side of the equation, the Bank of Japan has introduced an expansion of the bond purchase program by 10 trillion Yen, and even are talking of buying ETFs in the marketplace as well. In reality, it is the Japanese that are easing even more and should be seeing the value of the Yen fall. However, the markets will do what they want, and spending too much time thinking about what “should” happen can cause losses.
The 80 level below still looks very supportive, and it looks as if we are ready to start a serious battle at that point. There are many reasons to think that the level may hold as support, and as a result there will be a large amount of traders watching the area. After all, it was the site of a massive breakout earlier this year, and as a result there will be plenty of traders that would like to enter in order to participate in the move.
The area also has the 50% Fibonacci retrace level from the lows, and that will also attract traders as well. The 200 day exponential moving average is also approaching the 80 handle as well, so we have a serious confluence of supportive action in one spot. Now all we need is to see some kind of supportive price action to confirm this possibility. In fact, that is exactly what we are waiting to see.
The downtrend channel that has been keeping a lid on price should continue to have an influence, but on the margin – the 80 is much more important that the recent channel. Because of this, we are more inclined to buy this pair close to the 80 level as opposed to trust the channel for too much longer. Also, one must respect the fact that so many different things are coming together at one spot to suggest support.
Of course, if we break lower than the 200 day EMA, this would be bad news for the bulls in a big way. Below that, we would probably be looking for Bank of Japan intervention as the last hope for bullish action. Currently though, we are simply waiting to see supportive candles in the 80 area. It looks like Monday may have a real chance of delivering that.
Written by FX Empire