During the session on Tuesday, the USD/JPY pair fell significantly. It tested the vital 105 level, which was an area that Chris has been looking at as potential support and as a target as well. With this being the case, it makes sense that the market found buyers in that general vicinity. This is an area that should continue to cause a bit so supportive, but at this point in time it’s very unlikely that we will break down right away. This is especially true considering that we have formed a hammer, which of course is a very bullish candlestick.
Ultimately, a break above the top the hammer is traditionally a buying opportunity, but it doesn’t look like we can get above the 108 level easily. There is a significant amount of noise between there and the 110 level, so this point in time it looks as if we’re going to get a short-term bounce, and maybe not much more than that. After all, the market is very risk sensitive so we would need to see very strong indicators of economic certainty and resiliency in the stock markets or even the futures markets in order for the USD/JPY pair to continue higher.
Ultimately though, if we break down below the 105 level, that could be fairly catastrophic. The pair would more than likely reach down towards the 102 level, and then the 100 level. This is a market that has sold off rather drastically though, so it’s difficult to imagine that the momentum is going to continue to be a strong as it has been. Because of this, a bounce makes perfect sense. Markets tend to ebb and flow, and give everybody what they want over the longer term. That’s essentially what these candles mean to us.
Below you find the video