By: Christopher Lewis
USD/JPY has recently changed its tune, and the markets have been furiously back peddling in order to adjust to the new realities of the market. The recent break of 80 was very impressive, and vital to the future tone of the pair. The market that had been so congested suddenly found itself moving again, and this time it wasn’t a central bank intervention that caused it.
The Bank of Japan has expanded the bond buyback program, and as such they will devalue the Yen going forward. The announcement actually came after the move started, so it was just fuel to the fire at that point in time. The surge sliced through the 80 level with relatively little effort, and this suggests that the breakout is the real deal.
The Federal Reserve Chairman didn’t suggest that there was more quantitative easing on the way, so the market bought Dollars as it was an undervalued currency due to the expectations of more liquidity. This bled over to the USD/JPY pair, and it rose in value, even though it would normally fall in a “risk off” session. Perhaps we are seeing a shift in the behavior of this pair?
Surging Yet Again
The move on Wednesday was impressive, and the Tuesday candle essentially just proved the 80 level as supportive, and this move should have brought more traders in on the long side that missed the initial move. The pair looks set to continue higher, and one has to think that the Bank of Japan may be willing to give it another “nudge” higher in one way or another.
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The pair can be bought on dips, and I feel the next major resistance area isn’t found until we get to the 85 level. This is still countertrend, even though I feel the trend could be changing, and as such this won’t necessarily be a clean move, but we should grind higher. With this in mind, I am willing to buy dips on lower timeframes as it offers the Dollar a bit cheaper. Over time, I expect that I will have built up a large position in this pair to the long side. A daily close sub-0.80 has me out of the long side of this pair.