USD/JPY Forecast May 10, 2012, Technical Analysis

The USD/JPY pair has been one of the most interesting pairs in the currency markets lately, and the Wednesday session proved to be more of the same. There have been many different reasons to think that support would come into the fold in this area, but by the end of the session, we managed to close below the 200 day exponential moving average for the first time in a couple of months.

The 50% Fibonacci retracement level has been broken as well, and so has the 80 level that was the site of the massive breakout from the start of the year. The pair has been trying to find its footing in the area, but the fact is that the massive amounts of issues coming out of the European Union is making the markets nervous, causing a run to the “safety trade.” When times are hard, the Yen is always one of the biggest winners, even more so than the US dollar.

The recent price action has us doing a “reset” in this pair. We have been waiting for the long-term buy signal to appear, and we even got a couple of close calls. However, at this point it is becoming very obvious that the world is a nervous place, and as long as that is true, there is going to be a bit of downward pressure on this pair.

While we aren’t expecting a meltdown, a drift lower seems more likely now than ever. Under normal circumstances, we would consider selling. However, the Bank of Japan is very likely to get involved if we drift much lower than present levels, so we are simply going to hold for a while, or at least watch for a shift in sentiment or interaction by the Japanese central bank. The move lower will be difficult, even if the rest of the world seems to be leading it to lower levels. With this in mind, we are watching to see if the 61.8% Fibonacci level creates a reaction. We will not sell – there are simply far too many potential potholes ahead.

USD/JPY Forecast May 10, 2012, Technical Analysis

Written by FX Empire