- The USD/JPY has rallied again in the early hours on Monday to show signs of life against the Japanese yen.
- However, the ¥145 level continues to be very difficult to get above, and as a result I think you are going to continue to see a bit of a “push/pull” type of market.
- The market is clearly bullish longer-term, but in the short-term people were still reeling from the Bank of Japan intervention. It was announced today that the Bank of Japan use 15% of its cash reserves to intervene to support the Yen.
On the downside, there are a couple of different areas I’d be looking for value, namely the ¥142.50 level, and the ¥140 level, where the 50-Day EMA currently resides. I think it is very difficult to break below the ¥140 level, at least not without the Bank of Japan intervening again, or perhaps even stepping away from its bond-buying program. The other possibility could be that the Federal Reserve changes its mind, but I just don’t see that happening anytime soon. Longer-term, this might be a great shorting opportunity eventually, but we certainly are there right now.
Looking to Buy the Dip
If we do make a fresh, new high, then it’s likely that if it’s an orderly move to the upside, the Bank of Japan will probably leave it be. After all, it had to use a massive number of reserves just to make the statement last time. Central bank interventions very rarely completely turn around trends, but they do slow them down. It’s about the rate of change that central bankers worry about more than anything else because the market is simply too big for the Bank of Japan to control.
If we were to break down below the ¥140 level, I’d have to reassess the entire situation, but as things stand right now, it appears to be a “buy on the dip” type of market. You may find a bit more momentum in other yen-related pairs than this one, only because it is facing such a serious barrier. Nonetheless, the US dollar is still one of the strongest currencies in the world right now, and that’s something that you cannot overlook in this environment. While the Japanese yen is a safe currency, the reality is that the Japanese central bank is one of the few that are involved in quantitative easing.
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