The USD/JPY essentially went nowhere during the session on Tuesday, but didn’t do so out of a lack of action. The pair had a reasonably decent range, but in the end finished pretty much unchanged. The market has recently seen a breakout at the 80 level, and this is predicated by several different things at once.
The Bank of Japan has massively expanded its buying of bonds in order to weaken the Yen, and it looks as if the markets take that threat seriously. The pair has been sold for so long a simple “short covering rally” could be very significant in and of itself. If there were also fundamental reasons to get involved – this pair could be much, much higher in the future.
The 80 level was one that saw a lot of support previously and even served as resistance against an intervention by the Bank of Japan. It is because of this that we feel the breaking of the area is indeed a major event, and shows that something certainly is changing in this pair. The pair saw motion a lot like this in the mid-90s, and that predicated a massive move upward as a result. It looks as if we are going to see another leg up like that, but remember: These moves take time, and are very rarely clean.
The candle for the session on Tuesday is typical of this market lately, as we have seen exaggerated moves followed by sessions that almost look like periods of reflection by market participants. The doji gives us a simple set up: If we break above the highs, we buy. If we break below the lows, we sell. The close will be what we use to gauge whether or not we take the trade, as a daily close carries more water than a simple breakout in the middle of the session. However, this could be a great signal, and we expect that the longer-term moves of the pair are being debated right now. On a break out to the upside, we expect the 95 level to be targeted eventually. On a break down, we think the market will only be able to go as low as 76.50 or so.
Written by FX Empire