The USD/JPY pair had a pretty wild session on Wednesday as the pair both rose and fell in order to form a hammer just above the 78.75 level that we have been watching recently. This suggests that we may be seen a bit of support in this market, and as such we feel that buying this pair is even more obvious that was just a few sessions ago.
The Bank of Japan naturally is working against the sellers in this market, and it does look like they’ve made a stand at the 78 handle. There is a precedent for this as they didn’t previously and it appears that somewhere around 78, if not 76, is where their pain threshold is. They simply will not let the pair fall below there.
This could be predicated upon the idea that some traders out there suspect that the Federal Reserve will not ease its monetary policy anytime soon, and if that’s the case then that kills the bearish argument in this case. Because of this, we feel that a breakout which we have for all intent purposes already had, should lead this market to the 80 handle. As such, we are long already.
The real interesting fight will, at the 80 handle. If we can get above that level, the 80.60 level is the next resistance area to watch out for. If we can get above that, we more than likely should run back to the 84 handle before it’s all said and done. Above that level, we are looking at a buy-and-hold pair for years.
If we do for some reason break down below the 78 handle, we think that the Bank of Japan will more than likely intervene. It is because of this that we are willing to buy supportive candles below the 78 level as well. We are not willing to sell this pair, simply because we do not want to go against the wishes of the Bank of Japan. Without a doubt, the most dangerous trade out there is to work against the central bank.
Written by FX Empire