The USD/JPY pair rose during the session on Tuesday, confirming that the 95 handle is in fact offering a bit of support. In fact, I believe that the support level down here extends all the way down to the 94 handle, and as a result we should continue to see buyers step in at these low levels.
Will give this chart, you can see that there has been a significant selloff recently, and that more or less could be attributed to concerns about the Japanese government and their monetary policies. Simply put, I am starting to hear more and more chatter about how traders do not believe that they can pull it off. With that being the case, a lot of traders have closed out their long positions in this market. However, what I find interesting is that even with this massive selloff, we are still only fell 38.2% on the Fibonacci retracement tool from below to the high. In other words, this last 800 pips that we have sold off have simply been a blip on the radar. I know that it seems very difficult to believe that, but in reality it is true and quite often traders tend to focus on the shorter-term. In the longer-term and scheme of things, this pullback has simply been a healthy reaction to a market that has also been parabolic.
Today could be rough
The market for the session on Wednesday could be rather difficult, simply because of the FMOC meeting and more importantly the question and answer session after that meeting. With that being the case, I feel that this market will be one of more volatile ones, simply because we have a situation where two central banks are been so closely monitored. The Federal Reserve will be greatly monitored to see whether or not there is going to be more mention of "tapering off" of quantitative easing, and of course if that happens there should be significant strengthening of the US dollar as the markets price in higher interest rate. Alternately, if we see a reversal of that statement, we could see significant weakening of the US dollar, which could tank this pair. However, what will truly make a difference will be the 10 year bond yields in both America and Japan. Remember, this pair tends to follow those spreads, moving towards the strengthening bond yields.
