The USD/JPY pair formed a hammer during the Friday session, and that is where investors and traders found themselves when we open on Monday. At the end of the Monday session, we saw a slightly positive candle, but nothing really to write home about. Part of this would have been because the Americans were celebrating Veterans Day, but also because of the fact that there is quite a bit of confusion in the marketplace at this point in time.
It is because of this confusion and uncertainty that I believe that we are going to continue to consolidate in this market. We have a situation where to central banks are trying to kill off their own currencies, it appears so far that the Americans are winning this battle. However, the Bank of Japan is under renewed pressure to devalue the Yen as poor economic numbers came out of Tokyo during the evening.
The 80 handle has been the epicenter of a lot of action in this currency pair, and I believe that it still will be a magnet for price action. Because of this, I believe that we will eventually see the market try to make a move back towards the 80.50 level, especially after seeing the hammer that was formed on Friday. I believe that there is a bit of a bottom in this pair at the 79 handle, but there's also something that I would consider the "ultimate floor" in this market around the 77.50 level.
Beware the Bank of Japan
If you plan on shorting this pair, it is possible but you must understand that the Bank of Japan will not let it fall much farther than 77.50 or so. This is obvious because it seems to be some type of solid floor in this market, and the Japanese central bank has been guilty of clandestinely intervening this market before. This looks suspiciously like then.
With this being said, a break of the Friday highs would have me buying this pair, but only aiming for about 75 pips or so. This is only a short-term trade, but it's an obvious and easy one. These are the traits I like the most.