USD/JPY Forecast September 11, 2012, Technical Analysis

The USD/JPY pair had a very quiet session on Monday as the world awaits the High Court decision out of Germany, the result of the Federal Reserve meeting, and the Dutch election results. With all this in mind, it is difficult to imagine currency traders putting on a lot of risk before the results come from each one of these potential market moving events.

The 78 handle is just below at the moment, and we see this is a bit of a “line in the sand” for the Bank of Japan. With this being said, it looks like a great place to go long in this currency pair, as the central bank in Tokyo will more than likely be a large backstop for the foreseeable future. If the Federal Reserve does engage in further quantitative easing, it would push this pair lower, but this would have the Bank of Japan intervening directly.

This currency pair is currently a battle of two central banks trying to devalue their own currencies, and so far the United States is “winning.” However, if the Federal Reserve shows any inclination to pause on easing, this pair should shoot straight up as the Bank of Japan has shown absolutely no qualms about devaluing the Yen. In fact, they have been rather aggressive over the last couple of years, and looks set to start doing more asset purchases.

The 80 handle above still looks to be rather resistive, and we don’t necessarily expect to move beyond that. This is a shorter-term trade, worth about 180 pips but certainly an obvious one. If we did manage to get above the 80 handle, we would see 80.60 as the next logical step, followed by the 84 handle. Above 84 – we see this pair is a long-term buy-and-hold type of investment.

As far as selling this pair is concerned, we are very cautious about doing so. With the central bank in Tokyo working against his pair and his obvious “brick wall” at the 78 handle, we are suspicious of clandestine central bank intervention at this point. It really doesn’t matter why, but the truth is that this pair is refusing to go lower.

USD/JPY Forecast September 11, 2012, Technical Analysis

Written by FX Empire