Potential signal:
This trade setup is different: If the USD/JPY can close above 155.33 on a daily candlestick, I will buy this pair with a 150 pip stop loss, and a target of 400 pips.
The British pound initially pulled back against the Japanese yen during early hours on Wednesday, as we continued to threaten a major breakout. Quite frankly, the British pound itself isn't necessarily strong, it's just that the Japanese yen is that horribly weak. This is going to be a very pivotal week because Friday we have the Bank of Japan meeting and that, of course, is going to have a major influence on where we go next.
The Japanese may try to jawbone down some of the yen related pairs, but really at this point there isn't a whole lot that they can do because if they raise interest rates, it will absolutely destroy the bond market in Japan. This is what happens when the local central bank is the only buyer of bonds. That's generally how it's been for years.
The Japanese Might Be Stuck
With that being the case, they are stuck. They may get some help from other central banks, and we may see an intervention, but that intervention is going to end up being a buying opportunity. As things stand right now, the ¥194 level was the recent high or somewhere just below it. And we have significant support underneath the 50 day EMA, which hangs around the ¥191 level and is in a nice 45 degree slope higher.
Ultimately, I like this pair. I've been hanging on to it for a while and have enjoyed quite a bit of profit from the end of day swap. With this, I do think eventually we go higher, but the question is whether or not we pull back and find value or if we just simply take off. I think Friday will be the final answer. While it certainly looks as if it is a very bullish market in general, I think that at this point in time, people are looking at this through the prism of the next major hurdle to overcome. If we see the Japanese flinch, which they have been known to do, this pair will shoot straight up in the air. Furthermore, pay attention to the USD/JPY pair, because if we can break above resistance there, that will put upward pressure here as well.
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