Trade of the Day – USD/JPY – February 11, 2016

The current rally by the Japanese Yen has raised some concerns because of the damage it could do to the economy. In the past, the Bank of Japan has intervened to weaken the Yen. No one appears to be expecting it because it hasn’t been mentioned in any of the central bank statements.

However, in a recent speech Bank of Japan Governor Kuroda said the BoJ can ease more and devise more monetary policy tools. If they do come into the market to weaken the Yen then we could see a tremendous reversal to the upside by the USD/JPY. The purpose of this article is to warn you to be prepared for some sudden news because I believe Yen sellers are getting a little too complacent because trading the downtrend has become too easy.

On Tuesday, February 2, Bank of Japan Governor Haruhiko Kuroda said the central bank has ample room to expand stimulus further and is prepared to cut interest rates deeper into negative territory, signaling a readiness to act again to hit his ambitious inflation target.

Even after deploying what he described as “the most powerful monetary policy framework in the history of modern central banking,” Kuroda said he remained open to devising new means to revive the economy if existing tools did not work.

“If we judge that existing measures in the toolkit are not enough to achieve (our) goal, what we have to do is to devise new tools,” Kuroda said in a speech.

“I am convinced that there is no limit to measures for monetary easing,” he further added.

If this guy lets his ego get in the way then he may just step in to try to stop the rally by the Yen. Traders should be prepared at this time for some kind of intervention by the BoJ. Current market conditions suggest that something must be done before the sell-offs in the stock markets and the rallies in gold and the Yen get out of control. “To be forewarned is to be forearmed”.

Technically, the main trend is down according to the daily swing chart. Earlier today, the USD/JPY hit a multi-year low at 110.972.

Today’s range is 113.583 to 110.972. Its mid-point is 112.278. Based on the technical bounce from the trade at 110.972, short-covering may already be taking place.

Overtaking the mid-point at 112.278 will indicate the presence of buyers. The next target is a steep downtrending angle at 112.680.

Overcoming the angle at 112.680 will indicate the buying is getting stronger. This could create enough upside momentum to trigger a rally into the longer-term downtrending angle at 114.29. This is followed by another downtrending angle at 117.18.

Watch the price action at 112.278 and 112.68 today. Trader reaction to this area will tell us if the short-sellers are coming in to reload, or if buyers are coming in. They could be aggressive longs, or profit-takers. If the BoJ steps in to stop the rally by the Japanese Yen then look for a sharp breakout to the upside by the USD/JPY.

We are making highly speculative assumptions in this article, but like I said “to be forewarned is to be forearmed”. Something will have to be done to stop the rally in the Yen or the Japanese economy may be damaged seriously. Aggressive action by the BoJ will be the only way to stop the rally so start planning your strategy while the opportunity still exists.