The USD/JPY pair fell during the Thursday session as the tone was pretty soft for risk-based assets around the world. As this pair will follow the risk appetite in general, it’s not a surprise that it fell. The 80 handle above still looks very resistive, and it is that area that we think the market is trying to break through. The downside from here is simply too dangerous for us to be involved in the short trade as the Bank of Japan has been very aggressive in fighting the value the yen. In fact, we are not selling this market at all at this point because of that.
If we do get a move down to the 78 handle, we are more than willing to buy a supportive candle when we see it. On the upside, we need to see the 80.60 level taken out on a daily close in order to go long. This would signal a momentum shift as far as sentiment, and we would be more than willing to hang onto the trade until we get the 84 handle, at which point we would have to reassess the situation. If we can get above that level, we would it have a decent shot at having an ultra long-term trade.
This pair is going to be one of the more interesting ones to watch, as it is simply an argument between two central banks that are trying to ease. The Bank of Japan has increased its asset purchase programs by trillions of Yen recently, and it has made it very obvious that they are willing to fight tooth and nail against currency appreciation in that country. The exporters are suffering in Japan, and as a result they will simply have to do whatever is necessary to fight against the currency rising.
The real driver of this pair will be the Federal Reserve. Right now, there’s a lot of speculation that quantitative easing is coming sooner or later out of the Fed. If they do not ease, this could be the catalyst to make this pair finally start rallying. During the FMOC minutes released this week, there was absolutely no mention of any quantitative easing plans, only that it was possible if it was deemed necessary. Watching the announcement out of DC are going to be crucial in determining the future direction of this currency pair, this will be more of a fundamental pair to trade over the next several months than a technical one, but this will be important nonetheless.
Written by FX Empire