Dollar and yen caught in battle of two central banks

The USD/JPY (FOREX:USDJPY) pair rose during the session on Monday, but couldn’t hang onto the gains. What resulted is a shooting star, and as a result the market looks as if it is ready to pull back. Nevertheless, this may not be a proper selling opportunity and some traders (myself included) are actually remaining long and even looking to add to their positions as a result of this action.

The pullback should offer a buying opportunity somewhere below current levels, so it would be wise to look for signs of support as a result. The 100 level is obviously a large, round, psychologically significant number that will attract a lot of attention. The area should be enough to have the buyers step into the markets and push the pair higher.  Still, it is a good idea to wait for a hammer, or, at the very least, a supportive-looking candle before going long at that area. 

The Battle of Two Central Banks

The Federal Reserve could possibly taper off of quantitative easing, and if they do it will push the value of the dollar higher in general. The employment situation will be paramount, though, and several members of the FOMC have been quoted as saying it was the biggest concern that they have about tapering. If those numbers continue to surprise to the upside like the last announcement did, we could have the makings of a situation where the markets have to assume tapering is coming.

On the other side of the Pacific, the Bank of Japan continues to stay as easy as possible, and quite frankly is just at the beginning of the newest cycle. The question then really only comes down to the Federal Reserve and its intentions. The employment numbers – not just the Non-Farm Payroll, but the First Time Unemployment Claims – will continue to be the main driver of this market going forward. The better the numbers – the higher we go. It wouldn’t be unreasonable to expect a move to the 105 level, with a pullback before reaching that point. 

About the Author
Alp Kocak

Alp Kocak has been trading forex since 2003. He writes technical analysis based on Japanese candlesticks and Ichimoku Kinko Hyo and is a senior educator at FX Academy, where he provides trading strategies to traders at all levels.

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