USD/JPY Forecast May 1, 2012, Technical Analysis

USD/JPY has been an interesting market lately. The technical outlook for this pair has seen wild swings in momentum, and many traders and analysts are out there preaching one thing last week and another this week. This is often the case when you have a potential trend change, as these things only truly happen every few years, and many people in the markets have no experience with them, or very little at best.

The pair had seen a blasting through of the downtrend line on the weekly charts that the markets had respected since the start of the financial meltdown a few years ago. The move was significant, especially since the 50, 100, and 200 day exponential moving averages all moved higher just afterwards. In fact, there was a massive crossover involving all three EMAs, and as such this would have caught the eye of many trend traders as well since this doesn’t happen very often.

The action for Monday was bearish, and the 80 level has been cracked. However, the 200 day exponential moving average continues to hold up as support as price bounced right off of it. The 50% Fibonacci retracement level and the 80 handle have both given way, but it is here that a lot of the large money player will be looking. If this area gives way – there is little in the way of technical support to look for in the near term.

The breakout was a significant one, and because of this we feel that the pair should be given a chance to the upside. Any signs of support in the immediate area could be a buy signal, as the risk to reward is so high at this point. The Bank of Japan has intervened in this pair several times, and has even expanded the asset purchase program it has been using to weaken the Yen. The pair also saw the Federal Reserve Chairman suggest that quantitative easing could be coming if conditions warrant it. However, he failed to suggest what the parameters were in order to ease further. Because of this, there could be disappointment coming for Yen bulls.

The Non-Farm Payroll numbers on Friday will have a significant influence on this pair, as a stronger than expected jobs number out of America will have the market thinking QE3 is a long way away if it is coming at all. That would send this pair much higher.

However, in the meantime we see the immediate area as a potential support zone and would buy supportive candles going forward. Selling isn’t a thought, simply because the BoJ is going to lose its sense of humor about the situation soon.

Written by FX Empire