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The USD/JPY rallied a bit during the Wednesday session as the 78 handle was tested again. The fact that we have broken down through this massive support area is a bearish sign, and the fact that we also failed to rally through it during the Wednesday session adds to that bearish momentum. However, there is a real chance that the Bank of Japan gets involved in the relatively near term.
With the Federal Reserve looking to ease later today, there is a real chance that this pair would fall. Certainly, the shooting star that has form for the day looks weak, and it is a classic technical analysis signal to sell. However, we think that the Bank of Japan will eventually get involved if this pair search the fall too much. After all, they have defended this area several times in the past, as well as areas below such as the 76 handle.
More than likely, the Bank of Japan will have to let the market do whatever it wants to do for at least 24 hours. It is because of this, the we suspect that anything the Bank of Japan does will be early next week, and as such we are looking for some type of support candle below the 78 handle to buy this market on.
We still think that the Bank of Japan will ultimately get this pair higher, and there is a real threat that the Federal Reserve could disappoint the market. If they don't give the market all of them monetary easing that traders want, we could see this pair skyrocket. After all, there is no secret that the Bank of Japan is going to continue with its monetary easing policies, and as such this is really a fight to see who can weaken their currency the quickest.
We don't want to sell, we simply don't want to risk the central bank intervention. Yes, if you look at this chart and didn't know anything about the central banks it would look like a screaming sell at this point in time. However, this is a highly manipulated currency pair from time to time, and this could be one of those times.