The USD/JPY pair has been one that has been a bit of a battlefield between two central banks that are racing towards the bottom when it comes to the value of their own currencies. The Bank of Japan has been actively working against the Yen, and the most recent move was an expansion of the asset purchase program by a whopping ten trillion Yen. This would normally crush the value of the Yen, but with the rest of the world being so weak – it simply has slowed down the appreciation in the Japanese currency.
The Federal Reserve is the undisputed world champion of killing a currency. Simply pull up a chart of USD/JPY or USD/CHF over the last couple of decades, and you will see a systematic killing of the Dollar. The Federal Reserve is therefore taken much more seriously when it comes to bringing the value of a currency down, and by extension we have seen this pair continue to fall even after the BoJ has made it clear they are trying to boost it.
80.50 And beyond
The 80 level is the epicenter of price action at the moment. In other words, it is this resistance area that the markets will be paying attention to as this back and forth battle continues. The bottom of the current action is at the 78 handle, and it is just below there that the Bank of Japan has been intervening in this pair over the last several months. Because of this, it is almost impossible for me to sell at this level. As a matter of fact, if we fall from here I am going to look at the 78 level for possible supportive candles.
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The 80.50 level is now the “top” of the resistive area that must be overcome, and now I look at it as a massive buy signal if we see a daily close above it. In fact, I think it leads to a great longer term trade. However, at this point it looks as if we are going to see a real sideways chop going forward for the short run.