By: Christopher Lewis
The USD/JPY pair has been on fire for the bulls lately. While there has long been a call for a reversal, it looks like for the first time we may actually be seeing the start of one. The Bank of Japan has been intervening in this pair over the last year from time to time, and has even recently admitted that they had been doing it clandestinely as well.
The recent action has been very parabolic, and the pair certainly would be excused for taking a breather. The 80 level gave way, and this was a serious breakout. In fact, I thought the area was going to give the pair fits, but quite frankly it wasn’t much of an issue for this pair. Having said that, I think this pair is a bullish one and could be for the foreseeable future with the right “nudge”.
80 and the Doji
The breakout was for me, a very important moment. The level not only gave way, but it got out of the way – a small but key distinction. The pair broke above, and now has found the 80 level to be supportive at first glance. Because of this, the future in this pair could be bright as this is classic technical analysis.
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The doji from the Tuesday session shows that perhaps the market needs to grind a bit, and with the recent move upwards – this would be normal. However, the longer this pair stays above 80 the more confident the bulls will get. With this in mind, I find myself paying a lot of attention to the 80 level again.
On a break of the top of Tuesday’s doji, this would signal that not only did the 80 level hold as support, but the momentum to the upside has continued. This is the trade I would prefer to see form. You must remember however that these types of changes in sentiment are normally not clean, but rather choppy. Because of this, the pair may be difficult for some to trade. However, with the monetization by the BoJ recently and the poor state of exports, I think this pair will be a buy overall. If we close below the 79.50 level, I think the move down would continue – so it is at this level my thesis gets disproved.