The US dollar was initially flat against the Japanese yen on Monday, as the 112 level has offered significant support. Because of this, we rallied towards the 112.50 level above, which is significant, as the 112-level needed to offer support and more importantly, buying pressure to start going long again. This was a major level, but a breakdown below here could also send this market towards the 114.50 level again, which has offered significant resistance. Longer-term, when I look at this market I recognize that we are consolidating between 108 on the bottom, and the 115 level on the top, and therefore we could possibly breakdown. If we were to break down below 112, the market should continue to be negative at that point, because when I look at the consolidation, there isn’t much in the way of support between 112 and 108, so I think that if we were to break down from here, it could be a nice shorting opportunity. However, if we can continue to rally and move above the 112.75 level, at that point I think it’s much safer to buy.
In this little area that we find ourselves and now, it does look like we are trying to form a bit of a base for an up-trending move, but I think waiting for a sign of clarity is probably the best way to go, as this pair tends to be very difficult to deal with if you are not used to volatility, and of course is highly influenced by risk appetite around the world. I suspect that if we do break above the top of the most recent drop, and other words get to the 112.75 level, this will have essentially confirmed a short-term base, and allow things to go forward. However, if we were to break down significantly below the 112 level, that simply means that it’s time to start selling, at least for a couple of handles.
Written by FX Empire