From the Desk of Ian Culley @IanCulley
What do you do when the party gets out of hand?
You raise the roof!
That’s what the Bank of Japan (BoJ) did yesterday as its former yield curve control policies became untenable. After intervening to keep its 10-year yield below 0.25%, it shifted the ceiling to 0.50%.
Naturally, the yen responded in earnest. It posted an explosive rally following the BoJ policy shift, gaining more than 500 pips against the dollar.
But where does that leave the USD/JPY heading into 2023?
First, check out the weekly chart of the dollar-yen:
The USD/JPY has retested its August pivot lows marked by a critical extension level at approximately 130. This is a logical place for the dollar-yen to find support.
A bounce materializing in the weeks ahead wouldn’t surprise me. For that reason, my bias is neutral.
In addition, yen strength colored yesterday’s action across the FX market, not dollar weakness. The only market areas enjoying outsized gains were the yen and precious metals, particularly silver.
Yet, overall, risk assets remain under pressure.
The risk-off market vibes continue. I’d rather watch and wait in this environment, assuming plenty of trading opportunities will develop in the coming weeks and months.
Despite our neutral outlook, I like selling a break below those August pivot highs.
Let’s zoom in on the daily chart for a closer look:
If and when the USD/JPY breaks below 130.50, I want to sell weakness, targeting the 2016 highs at approximately 118.50 (shown on the weekly chart above).
My bias remains neutral until the market flashes a decisive breakout, but that won’t stop me from having my orders in place. Who knows when the BoJ will make another policy change.
For trading purposes, I only need to see the USD/JPY below 130 to get short. That’s good enough for me.
With only a couple of weeks left in this unforgettable year, the markets look poised to go out with a bang.
When the clock strikes midnight on Dec. 31, I’ll definitely celebrate with my hands in the air.
Thanks for reading.
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Allstarcharts Team
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