USD/JPY Daily Outlook Feb. 13, 2012

By: Christopher Lewis

USD/JPY is a highly manipulated pair. People often argue about whether or not Forex is manipulated, but the argument is pointless. The main reason for that is that the market is obviously manipulated, but not necessarily by the people that are accused. Normally the brokers get a bad rap, but in reality it is the governments and central banks that manipulate currencies.

The Bank of Japan is one of the most active central banks in the world. The Japanese make no bones about weakening the Yen, and unlike the Chinese or Americans, don’t bother making excuses either. They need a weak Yen in order to help with exports, and as such they will aggressively defend certain areas.

With this in mind, officials from the BoJ have recently admitted that the bank had been involved in the currency markets, and this makes sense as the 76.50 level mysteriously seemed to be impenetrable. The central bank has the misfortune of operating in one of the largest markets on earth, so even though it works against the value of the Yen from time to time, it needs to pick its battles carefully. Most of the time, the BoJ is simply trying to stabilize the pair, not crush the Yen as that is almost impossible. It is the world’s most expensive game of chicken.

200 Day EMA

The 200 day EMA is currently sitting just above the price of this pair, and the recent move has been parabolic. The reaction to the announcement was probably a little overdone, and as a result I feel a selling opportunity is presenting itself. The 78.50 level above is a resistance area, and a break below the doji from Friday could present a sell signal to jump on. Keep in mind that the central bank is below, so this is a short-term position, but should be good for about 75 pips or so.

If the pair rises again, I will look for selling opportunities all the way up to the 80 level, which is a massive resistance area in this pair. Once we get closer to 76.50, I would also be willing to reverse my position as the central bank has been active down there.