There is chatter that the Bank of Japan might finally do something to fight its depreciating currency, via some type of interest rate normalization. That being said, the interest rate differential between these 2 economies is still wide enough to drive a bus through, so it makes no sense to think that the market will suddenly change that dynamic and therefore traders will still be willing to take advantage of the interest rate differential at the end of every night.
If we do break down from here, the 50-Day EMA comes into the picture for potential support, which is a major indicator for the trend. All things being equal, this is a market that I think will eventually find a way to turn things around and if we break above the top of the Tuesday candlestick, that might be the signal that the buyers have come back into the picture in order to drive the market back toward the ¥187 region.
In general, this is a scenario where we are going to see a lot of noisy behavior, and therefore I think this is a situation where the trader needs to be careful, but I still favor the upside over the longer term. Shorting this market means buying the Japanese yen, and therefore believing that the Bank of Japan is actually going to do something. So far, they’ve only hinted that they might consider it. Nonetheless, it’s enough to get people collecting profits from a huge move to the upside that we have seen.
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