The USD/JPY pair fell precipitously during the session on Tuesday, breaking through the 78 handle finally. This has been an area that has acted is massive support in this currency pair, and there has been speculation that the Bank of Japan has been supporting this pair at that point. The central bank has been active in the past, and even admitted to clandestinely intervening in this currency pair somewhere around this price.
Looking at the chart, the fact that we are closing the very bottom the candle does look very bearish indeed. With the Federal Reserve having an announcement on Thursday, there is a real chance of the Bank of Japan may step to the sidelines until after that announcement is made. After all, they do not want to fight with the Federal Reserve, and as such will wait to see what they do.
Looking at the market on the whole, we believe that intervention is a serious threat now that we’re under 78, but as mentioned before we have to wait until we see what happens at the Federal Reserve. There is also the possibility that the Federal Reserve disappoints the markets, and this would cause a massive spike in this pair.
If we can get back above the 78 handle, there’s no reason we see that the market can’t reach 80. We still think that overall this pair will be in the process of building a bottom, and as such this market could be very volatile. With the Bank of Japan aggressively working against the value the yen, it is only a matter time before they fire their shot back at the Federal Reserve post the meeting on Thursday.
With both of these central banks working on quantitative easing in one form or another, this is more or less a “race to the bottom” by both central banks as far as their currency. We like buying supportive candles, but obviously the next couple of days will be difficult to go long in this currency pair. The reaction to the Federal Reserve announcement on Thursday should be telling as to the future direction of this currency pair, and as such we are going to wait until that happens.
Written by FX Empire