USD/JPY Forecast May 21, 2012, Technical Analysis

The USD/JPY pair continued to fall on the Friday session as the Yen strengthened again. The market is openly speculating that the Bank of Japan will do little to ease next week, and as a result the Yen is being bought again. However, the central bank certainly isn’t interested in the Yen being so highly valued.

The easing in Japan has just started back up again, and as long as that is the case there will always be a threat of a spike in this pair.  As a matter of fact, the market isn’t too far above the areas that the Bank of Japan intervened at last year. The BoJ will be looking for a way to work against the Yen again, and as a result we aren’t comfortable shorting this pair at this level – even if the real risk seems to be on the downside now.

The market has broken through our very last technical signal at the 61.8% Fibonacci retracement level, and as a result we have no technical reasons to expect bullish price action. However, the intervention that the Bank of Japan is likely to do at lower levels will more than likely be the catalyst for bullish behavior going forward. The fact that the 200 day exponential moving average is above the market at the moment suggests that heavy money is flowing into this pair. Quite frankly, this pair is a tough short because of the central bank, and as a result it is going to be easier to sell other currencies against the Yen, such as the Aussie and Euro.

The breaking to the upside of the 80 handle would have us looking for longs again, but the recent price action suggests to us that this isn’t likely to happen in the short term. There is also support to be seen at 78, and of course lower as well. Look for the Bank of Japan to start jawboning this pair again, and the meeting and announcement will have to be passed on Wednesday to get a thorough examination of the likely next move by the BoJ. However, we do know that only buying is possible down here. We just need the signal.

USD/JPY Forecast May 21, 2012, Technical Analysis

Written by FX Empire