The Bank of Japan has announced that it is going to continue the quantitative easing program that it’s been in for a while, despite the fact that most market participants expected the Japanese to finally acquiesce and allow for higher interest rates. That being said, the Japanese yen got hammered against most currencies early in the session on Wednesday, but has since seen a significant turnaround.
Erratic Movements in the USD/JPY Pair
At one point, the US dollar was threatening to break above the ¥132 level, but just a few hours later, we were all the way back down to the ¥128.75 level. This shows just how volatile this pair has been, and if the candlestick were to end up in the shape it’s in right now, it would be an inverted hammer. This could be a very bad sign, and if we break down below the ¥127 level, that opens up a huge air pocket underneath, we could see the USD/JPY pair fall quite drastically if that were in fact the case. That being said, we turn around and take out the top of the candlestick for the wild session on Wednesday, that tells you that the market is ready to turn around, and this could end up being a resumption of the run that we had previously. You can make an argument for that making quite a bit of sense, because the Bank of Japan is going to continue to have to print more currency in order to buy “unlimited bonds” to keep that interest rate down at 0.5% on the 10 year.
USD/JPY Technical Outlook
- I do expect a lot of volatility and it’s going to be difficult to hang onto any move because it won’t be surprising at all to see a lot of people getting shaken out.
- This is the type of market that takes a lot of courage to hang onto, but I do think that it will reward those who show courage.
- At this point, the next candlestick or 2 could determine the next 1000 pips, if they are big enough and decisive enough to attract momentum chasers.
This is going to be very interesting, so hang on and let the market decide which direction it wants to break before putting money to work now.
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