The USD/JPY pair initially fell during the course of the day on Wednesday but found the 100 level below is no support to turn things back around and form a bit of a hammer. Ultimately, I believe that this market is going to be a bit different than many others, mainly because we have the Bank of Japan possibly intervening below the 100 level. They do not like the idea of the Japanese yen strengthening that much, and have been very vocal about it recently. With this being the case I believe that a break above the hammer is reason enough to go long, but quite frankly I also believe that we could see a bit of an investing opportunity as well. In other words, it would be a small position that you can take and hang onto as this market could very well find itself reaching towards the 105 handle.
With this, the market could be very volatile, and quite frankly I believe in using low leverage in order to take advantage of what very well could be a bit of a bottom for the longer-term move. The central bank in Tokyo will without a doubt be very interested in this market breaking down, and has a history of intervening. In fact, there have been times when we dropped below this level that not only the Bank of Japan intervened, but so did the Federal Reserve and the European Union a couple of years ago. This of course shows that the 100 level is ultimately the “line in the sand” when it comes to the currency markets.
This isn’t to say that we are going to see intervention as soon as we dropped below there, just that underneath that level there is an extreme danger of large amounts of support coming in via central banks. I think that you will see a lot of volatility, you normally do when a trend is trying to be changed, and that’s especially true in this particular market as history has shown us more than once.