USD/JPY is one of the most interesting pairs at the moment for me. This pair is a battlefield between two central banks hell bent on killing their currencies. The Bank of Japan has recently added ten trillion Yen worth of purchases to their asset buyback program, which is essentially the same thing as printing Yen out of thin air. At the same time, nobody can crush a currency like the Federal Reserve, of which the Chairman has recently suggested easing could come if there were serious issues arising.
The pair technically broke out back in January, and the 80 level was the site of a massive move higher. The move caught a lot of traders off guard, and the short covering and newly implemented longs pushed the pair much higher in a very short amount of time. However, the pullback over the last two months has many people questioning whether or not the pair truly broke out. I feel that so far we are still finding out.
Confluence
The area that the pair is in at the moment has many different things going on at once. Not only that, the pair has several things that have happened recently that coincide with a bullish position. The crossover of the 50, 100, and 200 day exponential moving averages previously suggested to the trend traders that we are in a bullish market suddenly. Also, the weekly trend line that fell from the financial meltdown had been broken through, suggesting a trend change.
The area now has the 80 level, which is the site of the breakout. The 200 day exponential moving average is just below, and the 50% Fibonacci level is right here as well. (The level drawn from the absolute lows.) The Wednesday candle formed a hammer that rests on the 200 day EMA, suggesting that the buyers are coming back into the market.
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The area we are in at the moment is consolidative however, and as a result I am waiting to see 80.50 broken to the upside in order to buy. The Bank of Japan will certainly get interested in the markets if we fall too much, so selling isn’t a thought at the moment.