The EUR/JPY got a nice jolt higher during the session on Wednesday as the Bank of Japan has now made it clear that they continue to pursue a weak Yen policy. Not only that, but they also have announced that their inflation target is no longer 1%, but is now 3%. Needless to say, this will require quite a bit of easing going forward.
With that being said, the Yen it should continue to weaken in general. However, this is a very risk sensitive pair, and of course we have plenty of problems in Europe. Technically speaking, we have recently broken down below a nice long-term trend line and have bounced in order to retest the general vicinity again. The 102 level has been support in the past, so by extension it should be resistance now. The market closed the day right at the one and two handle, so this will be one of the more interesting pairs to watch today.
What was once support is now resistance?
One of the oldest rules of technical analysis is that "What was once support is now resistance.” Because of this, I suspect that this area will meet quite a bit of selling. If we get a breakdown from the 102 level, I think we could retest the 100 level for support. It should be noted that the four hour chart formed to shooting stars in a row Wednesday, showing that there is indeed resistance above. If this continues, the Bank of Japan may be tested.
It should be noted that in the past the Bank of Japan has announced new measures, only to be stopped by the market. There is always some type of knee-jerk reaction, but they reaction has always been short-lived at best.
I won't be buying this pair unless we managed to break above the former trend line. More than likely, we will see some type of resistant candle in which to start selling again. In fact, as I mentioned previously we solve two in a row on the four hour chart. If we managed to break down to 101.80, I will more than likely throw a small position out there on the short side in order to try and take advantage of the "risk off" appetite currently.