USD/JPY Daily Outlook April 30, 2012

By: Christopher Lewis

The USD/JPY pair has been one that I have been following quite closely over the last several weeks. The pair has been in a massive downtrend for a long time, (If you are loose enough with your definition of downtrend……the 1980s.) and as such when it falls it can fall quite rapidly. This is the market that we found for the Japanese Yen for much of the last several years. However, we have recently seen a major level broken, a trend line that was also major broken, and the major moving averages crossover as well. In other words, the trend is attempting to change in this pair.

The Bank of Japan announced that it was expanding the purchase program it is currently running by another ten trillion Yen to a total of forty trillion. The program was also expanded to include buying ETFs as well as Japanese Government Bonds. Because of this, in normal circumstances the value of the Yen should have plummeted.

80 is crucial.

The 80 level was the site of the massive breakout in February that started all of this in my mind. Now, after seeing this pair pullback, we finally get to see what this rally is made of. This will either be a speed bump on the way down to low levels, or it will be that place you look on the chart two years from now and say, “If I had only got in this pair back then!” Why do I say this? It is pretty rare that we have so many things line up at the same time in a currency pair.

The 80 handle is also just below the 50% Fibonacci retracement level. The 200 day exponential moving average is just under the 80 handle as well, and of course this was a massive support and resistance level previously. With all of that together, it stands to reason there will be a lot of interest at this point on the chart. Also, there is a lot of clamoring in the markets about the possibility of further easing by the Federal Reserve, and we may have a situation where the market is trying to put words into the mouth of Ben Bernanke as he said the Fed still had more tools to help the economy if needed. However, he never stated during the news conference what it would have taken to use them. Any signs of a higher than expected bar to clear in order to ease, and this pair will slingshot higher.

With this being said, I am buying this pair on signs of support in the area we are at now. I will hold this pair as long as possible, and if we clear the 85 handle – I am going to be long this pair for months if not years. Otherwise, I am not going to be involved.