The USD/JPY pair did very little during the session on Monday as we continue to bounce around in the 79.50 level. The hammer that was formed on Friday still has is thinking that this pair will bounce and consolidate with 80 being the center. This area should continue to contain pricing going forward, until a decision is made by the market as to which currency should be weaker. After all, the Federal Reserve and the Bank of Japan both are working against their own currencies in this market.
It is because of that Bank of Japan intervention threat that we do not like selling this pair for any length of time. If we managed to break the bottom of the hammer from Monday, that is a sell signal, but we think it only runs down to about the 78 handle. Alternately, we think that 80.50 will continue to be resistance, and as such a break above the highs from the Monday hammer would have us buying, but only expecting a move to about that level.
If we managed to get above 80.50 however, this would be very bullish and have us aiming for the 84 handle. There is very little in the way of substantiated resistance until we hit that handle, so therefore we would be more than willing to hold onto the trade for at least that long. More so, if we managed to get above 84, we think this market takes off to about 110. Granted, this is a longer-term trade at that point in time, but this pair does have the ability to March forward relentlessly like that as we saw for several years before the financial crisis.
In the meantime, we only expect consolidation. Because of this, if we managed to get above 80.50, we would not only be long of this market but more than likely be aggressively so. There is very little that we can envision that would make us aggressively short this market, simply because of the Bank of Japan and all the threats that it brings to the possibility of being short in this pair.
Written by FX Empire