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The USD/JPY pair initially had a bullish session on Tuesday, but gave up quite a bit of the gains as the market churned within the 79-80 resistance zone. The area looks ripe for a pullback, and this was of course something that we suggested could happen. Looking at the candlestick for Tuesday, it is a shooting star and does suggest lower prices. We do however see support at roughly the 78.75 level, and would be interested in buying any supportive candles either at that level, or below going down to the 78 handle.
This market tends to mirror the ten-year US Treasury note, and as such today should be a fairly big day for this currency pair. If the Federal Reserve minutes released suggests that quantitative easing is coming in the near term, this should force US rates lower as the Federal Reserve will almost undoubtedly expand its bond buying purchase program if it chooses to ease. The differential between the United States bonds and the Japanese Government Bonds on the ten-year note should narrow at that point, and push this pair down.
However, if the Federal Reserve makes absolutely no comment or suggestion that quantitative easing is coming soon we could see the ten-year notes rising yield, and this would push this market higher. This of course remains to be seen, but it should be something in the back of your mind if you're going to trade this market.
Either way, the 80 handle looks to be massively resistive and the major hurdle that this market needs to get above in order to go long for any length of time. If this does happen, the 80.60 level is the next serious resistance area, and then of course followed by the 84 handle as there is a nice large "air pocket" between the two.
We do believe in buying this pair at this moment in time. However, we think a pullback is not only coming but welcome at this point. The Bank of Japan is working against the value the Yen, and if the Federal Reserve chooses not to give hints as to more quantitative easing, there should be absolutely no reason this pair doesn't gain in value.