By: Christopher Lewis
The USD/JPY pair has recently seen a relentless march south as the world suddenly believes that the Federal Reserve is about to enter another round of quantitative easing in the near future. The pair has been one that many traders have been paying extra special attention to as the recent action suggested that we could have been changing trends.
Looking at the Monday action, we can see that the markets fell yet again. The Bank of Japan announced last Friday that it was expanding its asset purchase program by ten million Yen and expanding what it buys as well. The central bank is buying Japanese Government Bonds, REITS, and ETFs now, all with the idea of weakening the Yen overall.
The Federal Reserve Chairman has expressed the idea that the Fed could ease further if the economy warrants it, however he failed to give the parameters that would trigger this act. It seems that the market as a whole is already pricing in the idea of quantitative easing. However, there is now a real possibility that the market may be disappointed.
80 is broken, but we still see one last support level.
The 80 level got broken on Monday, but the 200 day exponential moving average kept price up at the end of the session. The pair now is entering a very important spot, as the bulls are now looking as if they need to make a real stand at this point. Oddly enough though, I am completely uncomfortable with selling this pair as the Bank of Japan will certainly be involved if we fall much farther. After all, they have been battling hard to weaken the Yen, and I find it hard to think they will simply roll over and let the Yen appreciate like it could.
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The Japanese economy desperately needs the export sector to be competitive on the world’s stage. There simply isn’t enough domestic consumption to make up for the strong Yen. Because of this, the Bank of Japan will eventually get this pair back up, but it may not be now. However, I prefer the risk-to-reward of buying on supportive candles in this area than trying to play chicken with the Bank of Japan. If I don’t get that supportive price action – I will simply step aside in this market.