The USD/JPY pair was very quiet during most of the session on Tuesday, but then found the 111 level to be supportive enough to cause a significant rally. The Japanese yen sold off later in the session, as the Americans picked up the ball. Now that we are pressing the 111.50 level, the pair looks as if it is ready to continue going higher, perhaps reaching towards the 112.50 level above which has been important in the past. This is a market that’s highly sensitive to risk appetite overall, so pay attention to stock markets, specifically the S&P 500, as they tend to have a nice correlation to this pair and what happens next. After all, the Japanese yen is considered to be a safety currency, and when it sells off it’s very likely that the market will continue to expand risk appetite in general, and this is a very good sign as we had seen a massive bullish candle during the day.
The importance of 112.50
If we can break above the 112.50 level, the market can continue the longer-term uptrend, and therefore it would be a very strong signal. I don’t think it will happen the first time we approach it, but longer-term I still believe that this market should go higher. Even if we do fall from here, I believe that the 110 level below will continue to offer massive support as it has in the past, and of course we are starting to see the stock markets around the world to show signs of strength again, so that tends to pick this pair up over the longer term as the correlation is strong. With that, pay attention, we could see a nice move forming before our eyes currently.
Written by FX Empire