Potential Signal:
- I am a buyer of this pair on a break above the Friday candlestick, with a stop loss at the ¥142 level.
- I’d be aiming for the ¥149 level, possibly even higher than that, with the expectation that it is going to be very volatile.
- The first thing I see is that we have in fact challenged the ¥144 level, an area that has been important a couple of times in the past as it was support on the way down.
- In other words, we are testing “market memory”, which of course is always interesting to watch and could set up for some type of trading opportunity.
- However, it’s also worth noting that the market has been waiting for the Bank of Japan and its interest rate decision, which ended up being no decision and all.
- In other words, they are not tightened monetary policy, and therefore we have seen the Japanese yen week in a bit due to this.
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Technical Analysis
The ¥144 level of course has been support in the past and it does look like it’s trying to offer some type of resistance in the present. The Thursday session had tried to break above it, but then pulled back quite drastically, only to turn around and see the Friday session break above there, at least temporarily. If we were to break above the top of the candlestick for the Friday session, then it’s possible that we could go looking to the 50 Day EMA, which is closer to the ¥147 level. The 50 Day EMA continues to be crucial, and of course has offered a bit of dynamic resistance in the past.
If we were to fall from here, then I think the USD/JPY market could drop down to the ¥142 level rather quickly, but with the Federal Reserve dropping 50 basis points and its interest rates, while the Bank of Japan remains at just 25 basis points total, you do get paid at the end of every day to hang on to this pair, via the swap that is so prevalent in the carry trade. In fact, I believe that the carry trade may start back up, let’s course we get some type of massive panic situation, which of course is always possible in this environment.
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