The USD/JPY pair fell during the session on Tuesday as more European worries had participants running towards safety. The pair is approaching the 78 handle, and as such we expect supportive action in the immediate vicinity. We also feel that the Bank of Japan could possibly be eyeing this area, if not clandestinely intervening at this point.
On signs of support in this vicinity, we are more than willing to go long as we think we could remain in the previous consolidation area between 78 and 80. With the time of year being very slow historically, and would also make sense to simply bounce around in the previous neighborhood.
The one wildcard in this particular currency pair is whether or not the Federal Reserve will choose to ease monetary policy again. There was a report out of the Wall Street Journal late during the Tuesday session that suggested the possibility of Federal Reserve action next week. If this were to be true, the 78 handle would more than likely give way.
Having said that, until we see or hear the news that this is definitely going to happen, we can only assume it is a rumor. This is why we like this particular area, and the fact that the area had been so resistance previously, which of course should under normal circumstances turn into support.
On a break below 78, we are not selling this pair as we think a pair is going to be serious risk of intervention by the Bank of Japan below. So while we can see the obvious downtrend, we think that the downside is most decidedly limited. We are looking for supportive candles in the area, and the Monday candle did suggest support in the form of a hammer. However, we did not break the top of that range so there would’ve been no entry signal.
Going forward, we expect to buy this pair and run at least to 80 or so. Once we get above there, 80.60 should be resistive, but only in a minor sense. Above there we think this pair runs to the 84 handle.
Written by FX Empire