The USD/JPY has fallen a bit during the trading session on Thursday as we continue to see a lot of noisy behavior between the ¥127.50 level and the ¥130 level. The market has seen a lot of interference from the Bank of Japan, and therefore it’s not necessarily an open and free market at the moment, as the central bank continues to attempt to keep yields down to 50 basis points in the 10-year note.
I think this is a situation where you have a lot of noisy behavior just waiting to happen, and of course, you must pay close attention to the massive, inverted hammer that formed during the Wednesday session. The inverted hammer was a result of the Bank of Japan reiterating its desire to keep the rates low in Japan, and therefore sets them up to buy “unlimited yen”, in order to buy “unlimited bonds.” On the other hand, the market continues to see a lot of negative pressure on the US dollar, so, therefore, we are seeing a lot of egg back-and-forth short-term movements.
Noise Ahead
- Ultimately, I think we are at a major inflection point. The ¥127 level being broken down below could send this market much lower, as I think there’s a big air pocket underneath that region.
- On the other hand, if we were to turn around and break above the top of the inverted hammer from the Wednesday session, it’s very likely that we will continue to see a lot of upward pressure as it would be such a big turn of events.
- The market is also starting to pay close attention to the so-called “death cross”, which is when the 50-Day EMA breaks down below the 200-Day EMA.
While typically a late signal, it is one that some longer-term players pay particularly close attention to. All things being equal, I think we probably have a lot of back-and-forths and noisy behavior over the next several sessions, as we struggle for some type of clarity. Ultimately, it’s only a matter of time before we have to make a bigger trade and move in this pair. It’s been quite a brutal selloff, but then again it was quite brutal on the way up as well, so it does make a certain amount of sense.
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