By: Christopher Lewis
USD/JPY was a pair that nobody wanted anything to do with for months. The Bank of Japan was actively working against the value of the Yen via intervention, and as a result many traders simply wouldn’t be bothered to sell this pair. Every once in a while, the BoJ would send this pair surging to remind traders that they didn’t want to see the Yen overvalued.
However, over time we found that there were certain levels that the central bank was working around. As a matter of fact, the last intervention level was at the 75.50 area at the end of October. Since then there has been a massive amount of support for this pair just above that area, and recently the 76.50 level had been massive support. The Bank of Japan even went so far as to admit they were intervening in a clandestine fashion to keep the value of the Yen down against the Dollar. The final “nail in the coffin” of the massive bear pressure was the announcement of an expansion of bond purchases by the BoJ, which is essentially expanded quantitative easing.
80
The level just above is the 80 handle. There is an obvious support zone from the middle of 2010 to the middle of 2011 at this area, and as a result I am expecting massive resistance as well. In fact, the central bank interventions have all stopped shy of this level, and this suggests that there is an outrageous amount of resistance and sell orders in the area. Because of this, I believe we are at one of the most important spots in this market currently.
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By watching this pair, we should be able to determine the direction for the pair going forward quite a bit. If the level produces a weak candle, then I am more than happy to sell this pair as it would be a continuation of the downtrend to the 76.50 area. If we can close above the 80 level on a daily chart could be the start of a change in trend. There are plenty of analysts that suggest that the Yen’s 10 year run is over. Only time will tell – but I do know I want to be on the same side of 80 as the market.