Is Back After Initial Surge

I suspect that the Federal Reserve meeting on February 1 will probably be the next major catalyst as to where we go. 

• The USD/JPY initially tried to rally during the trading session on Tuesday but gave back rather quickly as we now have seen the 50-Day EMA break down below the 200-Day EMA.
• That of course is the well-known “death cross” that a lot of people pay close attention to, and therefore it does put a little bit of technical negativity in this market.
• The market has more than just a death cross to worry about though.

Right now, I believe this is a market that must pay more attention to the Bank of Japan than anything else. Ultimately, this is a situation that continues to be very noisy because the Bank of Japan has decided that they are going to put a ceiling in the 10 years note yield at 50 basis points. Every time the market rises above 50 basis points, the Bank of Japan must print unlimited yen in order to keep those yields down. As interest rates around the world go higher or lower, Japan’s interest rates will go right along with it. Granted, the central bank in Japan is manipulating the market, so the best way to play this is through the Japanese yen itself.

Noise Ahead

As a print more yen, the lower it goes in value. On the other hand, if they don’t have to print yen, mainly because the interest rates are staying low, then the Japanese unit should strengthen. They recently reiterated their desire to keep that interest rate level intact, so we had seen on Wednesday of last week that the US dollar spiked against the yen. If we can break above the top of that inverted hammer, then it becomes a very bullish sign. On the other hand, if we break down below the ¥127 level, it opens a bit of a “trapdoor” underneath.

I suspect that the Federal Reserve meeting on February 1 will probably be the next major catalyst as to where we go. After all, most on Wall Street and a lot of currency traders believe that the Fed is going to slow down, but what happens if they don’t? Because of this, I believe that we will continue to see a lot of back-and-forth noise, therefore you need to look at this through the prism of the short-term range bound market.