The USD/JPY pair fell precipitously during the session on Tuesday, crashing into the 96 handle. We are now approaching an area that should be significant support for this market, and as a result I am very hesitant to short this market at this point in time. In general, I don't want to do it anyway simply because the Bank of Japan will eventually get a little bit irritated and start printing off Yen again.
I fully expect the 95 handle to be an area that the Bank of Japan watches, as they have recently suggested that they are comfortable with the Yen trading between 95 and 100. My suspicion is that the area will provide enough support to make the market bounced again, and as a result I am looking for short-term candles in order to start buying. Whether or not we can breakout above the 100 handle is a completely different question altogether, but I do think that a retrace of some of the losses for the session on Tuesday is in order.
Bank of Japan, Federal Reserve
Keep an eye on US interest rates, as the Federal Reserve certainly is. The 10 year bond has seen a bit of spiking here and there, and of course the Bank of Japan continues to try and weaken the Yen. This is a perfect scenario where this pair should continue to go higher over the longer term. Simply put, the Japanese absolutely have to devalue the yen, simply because of their massive debt. (Japan has the dubious honor of actually having a worse debt crisis in the United States.)
My suspicion is that this market will find resistance of the 99 handle again though, and as a result I think this is more or less going to be a range bound market for the short term. Ultimately, we will go higher, but there are a lot of people who been hurt by this recent pullback, and it will be hesitant to risk any trading capital going forward. We need to see a calm market in order for this pair to continue its trajectory higher.
