USD/JPY Forecast December 20, 2012, Technical Analysis
The USD/JPY pair initially rose during the session on Wednesday, but met significant resistance above, and formed a shooting star. However, we also see the fact that recent action has been so bullish that we think they pair is essentially waiting for the Bank of Japan and its announcement later today.
Looking this chart, we still think there is quite a bit of significant support focused on the 84 handle, and depending on what the Bank of Japan does, could produce a pretty significant move in this market. Of course, if the Bank of Japan does not ease as much is people expect, then we could see this pair fall apart. However, it’s very difficult to believe that as Japan has reentered a deflationary again, and this looks like a market that is ready to punish the Yen as they expand their balance sheet at the central bank.
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This being said, we prefer to wait until we see signs of support in order to start buying again. It’s likely to cross back and forth over and under the 84 handle a couple of times, so we feel waiting for a supportive candle on at least the four hour chart is the way to go going forward.
It should be stated that the risk to reward ratio is huge in this pair right now, and if we can get some type of bullish action we believe this market will eventually hit the 90 handle sometime during 2013. Is because of that that we are more than willing to be patient with this trade, and understand that it may take some time to set up.
On a hammer, we would be very long of this pair, not to mention a longer green candle. On a break of the highs from the Tuesday session, we would see plenty of opportunity to go long at that point as well. Since we are talking about a move of hundreds upon hundreds of pips, we could be a little bit lax with the exact levels that we choose to get involved in buying this pair.