Bank of Japan Stressing: A Look at USD/JPY

February 9, 2016

Following the BoJ’s negative rates decision, how content Kuroda and his men must have been as the Yen instantly repriced itself and weakened considerably.

“Job done!”

Okay that might have been using a bit too much journalistic license but either way, the point is that they would have been VERY happy with where the Yen was headed following their shock announcement.

Fast forward just a week later and carnage has hit Japanese markets as the Yen goes gang-busters against the USD, sending Japan’s major stock index the Nikkei225 down with it.

Let’s take a look at some charts, starting with the USD/JPY weekly chart. I always like to include the weekly charts for context when I speak about levels on these sorts of posts. While maybe not as fashionable, the importance of the higher time frame charts cannot be stressed enough. You don’t believe me? Check out the price action we have here:

USD/JPY Weekly:
Forex chart, USDJPY Weekly, 160209
Click on chart to see a larger view.

As you can see, price has had a MASSIVE bullish run. You don’t need to be a technical analysis genius to see that the chart is steep and sloping up. The bulls have been well and truly in control of this market since as far back as 2012.

We’ve spoken about the subjective nature of long term trend lines on the blog before and this is a perfect example of this fact. What I mean by this is that the longer the trend line runs, the more chance that other traders who are watching the level will have drawn it slightly different. Any difference in the way its drawn in the past will be magnified as time goes on and this is where you get half of traders telling you that the line has broken while the other half will tell you it is holding!

For this reason, I’m never going to be looking at these longer term lines as hard levels and instead treat them as zones for reference.

USD/JPY Daily:
Forex chart, USDJPY Daily, 160209
Click on chart to see a larger view.

Stepping down to the USD/JPY daily chart and you can see that the rally that negative interest rates gave, was actually back into the underside of the trend line zone. From that day it has been nothing but carnage for the pair, dropping like a stone off the technical re-test of previous support as resistance and Kuroda is certainly no longer laughing.

This is from today’s Reuters article that we shared on the @VantageFX Twitter account:

“Japanese Finance Minister Taro Aso warned on Tuesday against a recent rise in the yen, describing the moves as “rough”, a sign that policymakers are concerned the currency’s gains may offset the positive effects from “Abenomics” stimulus policy.”

“S**t!”

No journalistic license needed on what would have been said after today’s trading session. Maybe lost in translation…

Will central banks ever learn that you can’t fight the free market? Over and over and over again we see the same scenarios playing out across almost all central banks worldwide. As traders, we get the rally on initial stimulus or jaw-boning headlines and then we get the huge fall as the market takes back control of price.

This wasn’t the first and wont be the last. Be on it next time.

This technical analysis post was a follow on from the chart of the day section of last Monday’s post Bank of Japan morning blog. Do you see opportunity trading Japanese markets? Take advantage of moves on the MT4 platform via both Forex and Indices markets.

Dane Williams – @VantageFX

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