The USD/JPY pair tried to break out during the session on Wednesday, but as you can see turned back around to form a shooting star. The shooting star of course is one of the more negative signs that you can get as far as candlesticks are concerned, and as a result we feel that this market is probably going to fall from here. However, this is not a massive selling opportunity as far as we can see, we simply think that the market needs to pullback in order to finally break out as it appears to want to do. The 125 level above is massive resistance, and as a result it will take a significant amount of momentum to get above that area and continue the longer-term uptrend that we have been in for some time.
Even if you are a short-term trader, you should be able to recognize that there is only so much room for the market to move to the downside before running into significant support. We see that as being the 122.50 level, and on top of that you have to keep in mind that we have been in a very strong uptrend for several months. We believe that this market should continue to go higher over the longer term so we are simply waiting for opportunities to start buying again.
This isn’t to say that short-term traders will take advantage of this opportunity, but quite frankly we feel that it is much easier to simply wait for some type of supportive hammer. We don’t even necessarily need a hammer, just anything that looks like a bounce along the region of 1.2 .50 would be enough for us to get involved.
The central banks involved in this currency pair are at polar opposites at this point in time, as the Federal Reserve looks set to raise interest rates at least once by the end of the year, and the Bank of Japan is just simply sitting on its hands and occasionally adding more liquidity to the marketplace. That of course drives down demand for Japanese Government Bonds, which in turn drives down demand for the Japanese yen.
