By FXEmpire.com
The USD/JPY pair had a fairly volatile session on Wednesday as traders continue to weigh various factors around the globe. The 80 handle is where we find ourselves consolidating, and with its importance, this could be a very important inflection point in the direction of this currency pair.
The 80 handle was the site of a massive breakout back in the end of January, and the breakout was with extreme momentum. The area had kept the pair lower several times over the course of a few months, and even had resisted the intervention attempts of the Bank of Japan. The fact that the same area that kept the Bank of Japan at bay gave way was certainly something to pay attention to.
Speaking of the Bank of Japan, the central bank recently has expanded its asset purchase program by another ten trillion Yen. This program is used to purchase Japanese Government Bonds, REITS, and ETFs in the various Japanese financial markets. This is in a sense the same as printing Yen out of thin air, and should continue to work against the value of the Yen overall.
On the other side of the Pacific, the Federal Reserve Chairman Ben Bernanke has recently stated that the Fed has other tools that it would be willing to use if the economy takes a downturn in the United States. Many market participants have suggested this could be another round of quantitative easing, and as a result the Dollar has lost some of its strength recently. With this being the case, the two central banks are effectively in a race to the bottom as they both work to devalue their respective currencies.
The 200 day exponential moving average has entered the fray as well, as it sits just below the current price action. The result should be support underneath of the current level, and as a result we expect to see this area hold for a while. The shooting star formed for the Wednesday session would normally be a sign of concern to the bulls, but after the recent action – it looks more likely that we are going to consolidate around the 80 handle as a result.
The support is even more likely as the 50% Fibonacci level is just above the 80 handle as well, and this will have Fibonacci traders very interested in this area for possible longs. Also, the fact that the area is former resistance normally means that it will turn out to be supportive now that we are revisiting it. With all of this, we suspect that the pair will be bought at these levels. Also, you would have to believe that the Bank of Japan is closely monitoring this pair at the moment.
However, with the Non-Farm Payrolls number coming out on Friday, it is very possible that the currency pair is going to settle into a range in the current area until we know what the release is. In fact, the jobs report will be used to gauge whether or not the Fed is likely to ease further. If the release is good – this pair should bounce hard.
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Originally posted here
