By: Christopher Lewis
USDJPY is a pair that has taken most of my attention lately. The rest of the world is worrying about the Euro, and while there are a lot of reasons to pay attention to it, I have noticed that there seems to be a pattern of markets focusing on one particular pair while another one quietly makes significant moves. I believe that while the Euro grabs headlines, there is probably something more important happening in the Yen at the moment.
The Bank of Japan is expected to announce further easing during the session on Friday, in the form of expanded asset purchase programs. The Japanese Government Bonds will more than likely be the vehicle, and the only real question is going to be the amount of bonds they are going to purchase. The market seems to expect the BoJ to announce an expansion of 5 trillion Yen in this program, and anything less would certainly throw the markets into disarray.
80 still looms large
For myself, I am not willing to sell this pair until we are sub-80 as it is such a significant breakout point in this pair. The breaking of that level a while back really did signal a massive move, and until that is violated I feel that this pair can only be bought. Luckily, there are plenty of potential signals that are starting to line up at the moment.
For starters, if the BoJ announces more than 5 trillion in additional expansion we could see a significant move to the upside. The breaking of the top of the downtrend channel would happen, and I would see this as an opportunity to build up a long position. As for falling, there is the 80 level – which consequently is also just about at the 50% Fibonacci retracement level. The 200 day exponential moving average is just below that level as well, and I suspect there will be strong support because of it. On signs of supportive price action such as hammers or bullish engulfing candles in these areas will be used as buy signals as well.
.png "USD/JPY Daily 42712")