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The USD/JPY pair fell during the Friday session to keep within the recent consolidative area as the markets go back and forth. It is a well-known fact that the Bank of Japan has clandestinely intervened in this pair before, and it was near this area as well. Is because of this that we suggest that perhaps they are defending the 78 handle at this point in time, and also because of the gradually up sloping movement of the markets.
With this being said, it does kind of look like we are starting to form a bearish flag, but we happen to know that this is a massive area of support and the Bank of Japan has admitted to clandestinely intervening in this area before. Because of that, we are banking on the fact that the BoJ will continue to work against the value of the Yen. We think that playing this range should continue to be fruitful, and if we can get above the highs from Thursday we suspect that this market will move to the 80 handle and relatively quick order.
Remember, the Bank of Japan has an unlimited amount of Yen that a can sell in theory, and as such it does look like the markets exhausting itself trying to break this pair down. One of the main reasons that this pair could be falling is simply because people believe that the Federal Reserve is going to start monetary easing policies back up in September. If for some reason they don't, this pair will absolutely skyrocket. In fact, it will probably be the best trade of the year.
However, they can also disappoint by not easing enough. This is the more likely scenario, as we think that the Fed has shown time and time again that it is willing to give the market whatever it wants. However, it's very likely that will give it as much as it wants. This should continue to support this pair and we think that higher prices are in the future. If for some reason we do break below the 78 handle, we certainly for supportive action is intervention becomes a higher threat.