- The USD/JPY rallied a bit during the trading session on Friday, as we have broken above the ¥130 level, but gave that up again.
- Ultimately, this is a market that has been in a downtrend, and now is starting to see the so-called “death cross” form, which is when the 50-Day EMA breaks down below the 200-Day EMA.
This indication is typically very late in the cycle, but it does quite often have longer-term traders looking at the overall directionality of the market. The ¥127 level underneath is a major support level, and if we break down below that level, then I see a huge air pocket in this market, opening the possibility of a move down to the ¥115 level.
Looking to Place a Swing Trade
On the other hand, we turn around to break above the top of the inverted hammer on Wednesday, then it opens the possibility of a move to the 200-Day EMA. After that, then we could go looking to the ¥138 level. This is all about the Bank of Japan and what they are doing to keep interest rates on the 10-year note down to the 50-basis points area. If interest rates are to rise around the world, then it will force the Bank of Japan to print more yen, thereby diluting the supply and driving down the value of that currency. On the other hand, you also must keep an eye on what the US dollar is doing in general, because it starts to pick up strength, then I think you got a real argument to make for this market to go higher. On the other hand, if the US dollar continues to get pummeled, then it will probably see weakness here as well.
Regardless, we are in an area on the chart that I have marked with a rectangle that I anticipate seeing a lot of noisy crosswinds, so therefore I think we have a situation where the market is trying to figure out where the next 1000 pips will come from, and what direction they will be in. Ultimately, I’m keeping an eye on the top of the inverted candlestick from Wednesday, and of course that ¥127 level. Once we get a breakout of that area, then I plan on trying to place a swing trade.
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