USD/JPY had an interesting day on Wednesday to say the least. The pair initially fell during a "risk off" type of environment, but did manage to bounce late in the day in order to form a hammer. This is one of my favorite pairs to watch right now as there are so many different things going on at once. You can really get a feel of the mentality of Forex traders watching specific pair sometimes. This is one of those times for the USD/JPY pair.
Some of you may not have been trading long enough to remember that this used to be a fairly straightforward pair to trade. A few years ago, one would simply by this pair as the interest rate differential favor the United States. This was known as the "carry trade", and was used by many Forex traders around the world.
I believe that we may be entering a new phase in this market, and could perhaps be returning back to that old trade. This is because the Bank of Japan is so aggressive in working against the value of the Yen, that just about any type of monetary policy that involves easing can and will be attempted. On the other hand, we have the Federal Reserve which is still a bit of a mystery, but does like the ease well. This pair has simply been a measure of which central bank is going to ease more over time.
Confluence of factors
The hammer that was formed for Wednesday does show that we are continuing to build pressure to the upside in this market. In fact, there is the possibility that we are currently forming a nice up trending channel in this pair, and this could be the first signs of an uptrend beginning to form again. With that being said, it appears that the 80 handle is significant resistance and if it gives way, we should see a significant burst tire. For those that there'll the more conservative with their trading I would recommend waiting until the most recent high at the 80.60 level was overtaken as well. In fact, if that level gives way, I believe that this pair will go to at least 84 before it's all said and done. If that level gives way - this could become a long-term trend.
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