By: Christopher Lewis
USD/JPY originally rose during the session on Wednesday as the Dollar got a nice boost overall. However, as the Federal Reserve announced that it was going to keep rates this low until at least the end of 2014, this suggests that the Dollar should weaken quite a bit – except against the Pound and Euro maybe, as they have their own problems.
The Yen on the other hand, seems to be a bit of a safety trade. The Japanese economy is nothing you would want to invest in, but the Yen still remains strong for a whole host of reasons. The Bank of Japan has spent enormous amounts of money trying to keep the value of the Yen down, and as a result this market will often see interventions. The chart will often include massive spikes out of the blue because of this.
Shooting Star
The daily candle for Wednesday formed a beautiful shooting star as the resistance area of 78.25 held true yet again. The pair has been stuck between 76.50 and 78.25 for some time now, and this candlestick does absolutely nothing to make me think this is going to change anytime soon. The trend has been so strong to the downside; if it fell it wouldn’t exactly be a surprise.
The traditional way I trade shooting stars is to get involved on a break of the bottom of the range by roughly 10 pips. (This shows that the traders that attempted to rally the pair are all losing money, and covering their longs at this point – and it allows momentum to gain for sellers.) The move will more than likely head back down towards the 76.50 level, but the level is very likely to hold. In fact, I call shenanigans on the Bank of Japan for being so obvious about their “clandestine” forex operations at that area!
The pair continues to be a sell overall, but as you can see – 76.50 simply cannot be tested. With this in mind, I am willing to sell and take the 60 – 80 pips being offered on a breakdown.
