The USD/JPY pair had a negative session for most of the trading day on Friday, but bounced from the 79 handle in order to form a hammer. This hammer suggests that we are going to continue to consolidate between here and 80.50 or so. This consolidation continues the fight over the 80 handle, and it appears that the market is fairly balanced at that level.
The Bank of Japan desperately wants his pair higher, and as long as it can, it will work against the value of the Yen. Exports are suffering inside Japan, and it isn’t exactly a coincidence that Suzuki has announced that it is pulling out of America, and that the value of the Yen is a huge reason why.
On a break of the hammer from the Friday session, we think we grind higher to the 80.50 level. If we managed to break the bottom of the hammer, this is truly a bearish sign but this pair is quite a bit different in the way we traded. If that happens, we would expect to see a fall, but would not short it. In fact, we would be looking for lower levels and signs of support from which to start buying again.
We think the 77.50 level is where the Bank of Japan has decided to start defending every time it falls too. There is no explicit number that they have stated, but it seems like that area is very difficult for the sellers to break through. Because of this, we can only assume these things, and as such will trade accordingly. Once we get down to that level, we become much more aggressive on the long side of the market as we think this fight between the two central banks will continue.
The Federal Reserve is easing its monetary policy on an ongoing basis, but the Bank of Japan is well-known to do it in massive and brutal quantities occasionally. Because of this, it is difficult to buy-and-hold or sell and hold this pair, but we do have a well-defined range from which to start trading again.
Written by FX Empire