Strong Support at ¥83.55, Bearish Breakdow

Do not forget that the Bank of Japan has yield curve control in effect, where the 10-year yield needs to be at 50 basis points or lower. 

• The NZD/JPY initially pulled back a bit during the trading session on Tuesday, but then turned around to show signs of life.
• The 200-Day EMA looks as if it is trying to offer support, right along with the 50-Day EMA.
• Above here, the ¥85 level is an area that’s been resistive as of late, and therefore I think you need to pay close attention to it.

If we were to break above ¥85 level, then it’s very likely that we get a move to the ¥87 level, which is where we sold off from. In that scenario, we would face a significant amount of resistance, so therefore it’s likely that a lot of traders will be paying close attention to that area. Anything above the ¥88 level would send this market much higher, perhaps to the ¥90 level.

Pay Attention to the Bond Markets

On the other hand, if we break down below the hammer from the trading session on Tuesday, then opens up the possibility of a move down to the ¥82.50 level. The 82.50 again level is an area that has been short-term support, and it has been a “higher low”, therefore it suggests that there are buyers getting involved. In fact, when you look at the overall action of the chart, you can see that we are trying to form some type of basing pattern. Ultimately, this is a situation where we have so much in the way of noise, and of course noise specifically around the Bank of Japan.

Do not forget that the Bank of Japan has yield curve control in effect, where the 10-year yield needs to be at 50 basis points or lower. Every time we get closer to that level in the 10-year yield in the Japanese Government Bonds, the Bank of Japan is forced to print yen. In other words, the market will see a flood of new currency coming out of Japan anytime we have that happen. As rates rise, it works against the Japanese yen in general. However, the exact opposite is true as well, meaning that we have seen the Japanese yen strengthen at times when yields drop. In other words, you need to pay close attention to the bond markets in general, because they can give you an idea of where the Japanese yen will go, which is eventually what drives this market.