Today's post isn’t a specific trade recommendation, but a key chart observation to help plan future trades.
This is a very interesting time for the USD/JPY coming near a major support level, and the lowest level for over 20 years.
Looking at a chart with monthly bars stretching back to late 1988, USDJPY traded at a low of 79.750 in April 1995. The pair came tantalisingly close to that level in October 2010 trading at a low of 80.241.
For many months, I’ve been reading how the Yen is fundamentally overvalued: Japan has had zero interest rates for over a decade, the country has an aging population, the strong Yen is killing exports and the country’s debts are large compared to other industrialised nations.
I’ve never placed trades based on fundamental plays, because I believe good technical analysis can interpret and time the fundamentals better, as well as account for other factors such as market sentiment.
That said, the current Yen price level now could provide the crucial push for the Yen to weaken, placing it in line with strong fundamental influences.
If you’re involved with international trade, or are a longer term trader, the long-term USD/JPY chart should definitely be of importance to you at this juncture. I would be examining how it reacts to the historic support level - whether it bounces off the support, or whether the price moves through it, retraces and continues to move down to strengthen the Yen - as I believe a move in any direction will be strong.
H. Hamid
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