The USD/JPY pair had a volatile session on Wednesday, as we initially tried to break towards the 111.25 level above. However, we found too much resistance there and rolled right over to break down and go towards the 110.50 level underneath. This area offered a significant amount of bullish pressure, and we bounce from there. I believe that the market may need to go a little bit lower though, as the 110 level will be the true support on longer-term charts. Alternately, if we can break above the 111.50 level, the market should continue to go reaching towards the 112.50 level above, which is the beginning of a massive consolidation area. Because of this, I think that we will have a significant amount of volatility, and that will probably be the main theme.
Risk appetite
Never forget the risk appetite greatly influences where this pair goes, as the Japanese yen is considered to be the main safety currency in the Forex markets. As stock markets and overall risk appetite wanes, the Japanese yen more than likely rallies as people look for safety. The market looks very likely to find buyers below, but I think we need to have a bit of an accumulation phase, which takes a bit of time. The interest rate differential between the United States and Japan still favors the United States, so I think it’s only a matter of time before that shows up in this pair, sending this pair higher. If we could break above the 112.50 level, that opens up the possibility of reaching all the way to the 115 handle above there. It is going to be difficult to reach that area, and is going to be very noisy. Because of this, I do like going long, but I need to see a significant bounce to start putting money to work.
Written by FX Empire