USD/JPY Should Break 80.00 This Week

Monday, 1 November 2010

If you're currently positioned on the upside of the USD/JPY - look out. Estimates from market analysts and traders alike all show that the clear expectation for the week ahead is for more downside in the currency pair.

It is pretty much been a one way street this entire year for the USD/JPY - and there are no signs, at least from a technical perspective, that the down trend is going to reverse any time soon. The most recent low, just under the 80.00 mark - produced a quick bounce back to around the current market levels (80.54 at the time of writing) - and sideways trading for the rest of the trading sessions where this took place.

However, now that the market has had time to digest all of the news and market movements, we expect to see a continuation of the down trend - through the recent record low at 79.75.

The thought of the USD/JPY being in the 70's is a bizarre one. It wasn't that long ago that the Bank of Japan was intervening in the market at a level of 82.00. So how did we possibly get to stabilize at 80.00 and have no intervention to play with?

Well - it might be the case of the US Dollar doing all of the work. With the recent market expectations about another round of quantitative easing measures to be announced on Wednesday when the Fed releases its monetary policy statement, the most likely reason for a pause in intervention is so that the Japanese central bank can wait to see exactly what it is that the Fed plans to do.

As far as the charts are concerned, there might be a little bit of short term relief for the Japanese central bank, before the longer term down trend continues.

On the daily chart, the currency pair is sitting with a reading of 33.00 on the RSI - very close to a level which would indicate that it was oversold. We strongly believe that the currency pair will sell off to be in the "oversold" territory in the next few days, and then possibly a rebound will take place (depending of course on the release from the Fed on Wednesday).

All going well, the Japanese central bank will then have a chance to reassess the situation with the currency, and decide whether further intervention is necessary or not given the technical and fundamental levels on the currency.