The USD/JPY pair fell for the session on Friday as the “risk off” trade came into play. The markets aren’t free though, and as a result this is a market that needs to be played by very specific rules. Instead of what “should” happen, sometimes you need to play simply “what is.”
The Yen is a manipulate currency. For that matter, the Dollar is as well. I know that several out there will make a big deal about this statement, and that the Yuan is the only “truly manipulated” currency, but what else do you call it when a central bank simply adds more and more quantitative easing in order to decrease the value of its currency? Both the United States and Japan do this, so in a sense this pair is a race to see who can destroy their currency the quick. So far, the Americans are winning, but this doesn’t mean you can short this pair either.
The action for the Friday session was very telling for me, as the market produced a hammer based upon the 79 handle. This tells me that the level is going to be very supportive, and we already know that the 80.50 level is very resistive. Because of this, the trade in this pair will be short-term based, but somewhat predictable in my opinion.
Consolidation
The pair looks as if it is setting up for consolidation. I think the levels will be 79 and 80.50 for the short-term, and that there is a much large amount of support below at the 77.50 level. In fact, I even think that the Bank of Japan may be defending that area presently. If you look at the long-term charts, you certainly can see that the 77.50 level is suspiciously supportive.
The easiest trade in this pair is to simply go back and forth through the lower timeframes. This pair should continue to bounce around as I see no real catalyst to change things. However, it must be said that if we do manage to break above the 80.50 level, this pair could go much higher. Because of this, I am much more comfortable buying than selling on the whole.