USD/JPY fell during the session on Monday as the risk appetite was destroyed most of the day. However, in the later hours the Americans turned around and bid up risk assets in general. This of course means selling off the Yen, and it should be noted that the 78 handle acted as support as well.
I have been talking about the 78 handle for the last week or two now, and as you can see it does look like it's held as support. I believe that the Bank of Japan has something to do with this, but truthfully it doesn't matter who's behind it - just that it holds. With that in mind, the hammer that was formed during the Monday session is indeed interesting.
I believe that this hammer signals that we could perhaps be ready to bounce back towards the top of this trading range. For me, it's been fairly straightforward that the market once the stick between the 78 and 80 handles, and it doesn't seem that during this time of the year that we will more than likely see a breakout.
Intervention?
The Bank of Japan has already admitted to clandestinely intervening in this pair recently, and because of this I am very suspicious of the 78 handle. Technically, it does look rather supportive anyways, so it appears that the Bank of Japan is plain technical analysis as well.
The hammer has a nice long Wick on it, and this is often a sign of serious support. If you're willing to go along of this pair, I would wait until we break above the Monday highs as it would show a lot of losses for the sellers. I would also stress the fact that the pair is very choppy, and as such going long of it can be a bit challenging. This is not the type of trade that you're going to be rewarded right away necessarily.
However, it should be noted that the 80 handle is significant resistance, so if we manage to break above it that would indeed be a strong sign. If we can somehow manage to get above 80.60, I suspect we are running all the way to the 84 handle or beyond. You cannot talk me into selling this pair right now, because I know it's only a matter of time before the Bank of Japan gets involved.