USD/JPY fell during the session on Tuesday as the pair continues to test the support zone just above the 78 handle. This area is the same general vicinity that the Bank of Japan had recently admitted to intervening at clandestinely. The fact that the last several sessions have managed to bounce off of the 78 handle almost precisely, does have me thinking that they are in fact intervening again albeit in a very quiet manner.
The pair is currently a study in two central banks that are trying to weaken their currencies. In a sense, this is a "race to the bottom." The Federal Reserve can kill a currency like nobody else, so of course the Americans are coming out ahead in the race to devalue. It's kind of ironic when you think about it, because the Bank of Japan has come out and specifically stated that they were intervening, stepping into the markets and adding 10 trillion Yen worth of asset purchases, and many other smaller steps. On the other side of the equation, you have the Federal Reserve. While they have done some easing measures, the reason the Dollar continues to fall against the Japanese yen is that there is an expectation of the Federal Reserve to step in and do more quantitative easing.
78 and 80
The 80 handle is without a doubt the most resistive spot on this chart. It seems to be a bit of a ceiling to this current marketplace, and as such it seems like we will bounce around between 78 and 80 in the near term. In fact, although I think that eventually this pair goes higher, it is the 80 level that for me is one of the most vital. This is because we could possibly see a serious break out if the 80 handle can be overcome.
Once 80 gives way, we see the 80.60 level as our next target. If that area gives way, 84 is the next serious resistance point. And above there, this becomes a buy-and-hold pair for months, if not years. However, this is getting far ahead of ourselves, as it is most likely to simply be a range bound market for the foreseeable future between the above-mentioned 78 and 80 handles.