The USD/JPY pair initially fell during the Wednesday session as the Europeans sold off risk assets in general. However, towards the end of the session the pair did rebound to form a hammer. This hammer sits just below the 80 level, and as such simply reinforces our opinion on the market building pressure to break above that level. Of course, the nonfarm payroll report coming out on Friday will be a big mover of this pair, and because of this we will not place a trade now.
However, on a break above the 80.60 level we would have to reconsider. In fact, this is what we’re looking for to buy this market presently. The hammer for the Wednesday session does look healthy though, so we do fully expect to be long of this market sooner or later. If the nonfarm payroll number comes out strong on Friday, it would signal that the Federal Reserve is more than likely going to hold off on easing. As the Bank of Japan has been so aggressive in its easing policies, this would obviously make this pair rise in value based upon the implied it future interest differential.
As for selling this market, the Bank of Japan has been far too active below these levels in order to even attempt it. Granted, there’s a good chance that the market could fall as low as 78, but with the central bank being a potential adversary, it just makes sense to look for trade elsewhere if that’s the case.
If we do manage to break above the 80.60 level, we would not only be long of this market, but be willing to hold on for several handles. The next massive resistance area above is the 84 level, and if that gets broken to the upside – we could be looking at a multi-month, if not multitier move higher. With Japan’s poor demographics and massive debts, it isn’t really a surprise that this pair would eventually turn around. However, as with all things Forex related – timing is going to be everything.
Written by FX Empire