What Tricks does the Bank of Japan have up their sleeve?
The Markets were continuing to gain steam last week. Those pairs that were trending the week before continued their trending and those that were ranging are still ranging. The trending pairs were the Non-JPY pairs and the lone rangers were the JPY pairs which are conflicted with the actions of the BOJ.
Interesting to this trader, the BOJ was missing in action last week in regards to the USDJPY but there is a possibility of a covert move going on. The EURUSD has gained strength over the last week even though we heard of the Irish banks needing a bailout and weak economic reports being released. The USD reports were level to somewhat better and yet the EUR gained on the USD. This suggests to this trader that maybe…just maybe the BOJ is converting some of those purchased USD’s into Euros. Given the rising value of the EURO against the JPY and the USD this would be one way to hedge the loss of value in the USDs they are purchasing. Let’s see if the up trends in the EURUSD and EURJPY continue this week. The EURUSD is at a key level in price and a break thru of this price will signal a move up into the 1.4486 price level.
If the BOJ is buying EUROs this could just occur. One fly in the ointment is an announcement by Tehran (Iran) that they will be selling their foreign holdings of the EUROs for USD but the logic presented ie EURO is weak against the USD, is no longer supported by market movements so they might just change their minds.
What to watch for in the Markets this week?
The EURUSD and AUDUSD are at possible change in trend points so the actions this week could give an answer to continued up trend or beginning downtrend question. The USDJPY appears to be pushing towards the prior lows and it seems as if the BOJ has found another plan of action as stated above. Maybe the JPY pairs are safe to short now as plan B is followed by the BOJ but I would still advise caution until the EURUSD and AUDUSD show their strength or weakness at their current levels. The EURJPY is likely to continue higher as it appears the Euros are being supported by someone.
So what does this mean?
- The EURUSED has moved well in an uptrend but has reached a few milestones in this move. It has formed a 5th wave on the H4 chart and a 3rd wave of a daily correction. The 200 ema provided little resistance but price is approaching 2 key levels of resistance. It is at the 7/8ths point of a point from the 1989 low to the 1995 High (1.3860) and the 75% level in the Oct 2000 low to the Nov 2008 high (1.3842). The weekly time frame is up in nature but the monthly is still neutral. The daily chart will be our focus this week as we wait to see if the above levels are going to hold price and turn it downwards as the beginning of new waves on the H4 and Daily charts. If this level is broke the next key level is the 7/8ths position of the ATL to ATH range at 1.4486. This gives a strong reason to be cautious and watch the charts for the correct setup to enter the trades. The chart will have to tell us if it is long or short that we go.
- The AUD has finished 4 circles in price and attempted a move into another circle but has not yet committed to the circle. It remains in the Daily LRC and will be bound by it if it continues upwards. But a downtrend/retracement is expected as it completed a 5th wave and 4 circles in price. Continue to watch for a break of a steep trendline at 99660 with a daily close as an indication that an A wave correction has started. It was unable to close above the 0.9728 level suggesting a possible reversal point. If the market can break thru the 0.9728 line a run to 0.9802 is possible but I do expect some resistance.
- The USDJPY seems to have been abandoned by the BOJ as far as rescuing it from the lower levels it has reached. There was not identifiable intervention last week in the pair by the BOJ and it is approaching the prior lows and has again completed 3 circles in price and is approaching a critical breaking point at 82.56. A move below this level could indicate a move to the 80.11 level has begun.
- The EURJPY is showing additional signs of strength which is correlating to the up move in the EURUSD. A weekly range break gives a profit potential at 116.70.
Dr. Lorrie Bennett is one of LTG GoldRock's Professional Traders. Lorrie shares her years of trading wisdom through the USA day-time trading session and specializes in the work of WD Gann and it's application using simple trading setups. If you have any questions or comments, please leave them below.
BLOG UPDATE:
In the post I mentioned that the BOJ might be buying EUROs….it appears to be the Japanese Importers/Exporters are also involved…
http://www.bloomberg.com/news/2010-10-04/yen-falls-on-gains-in-asian-shares-speculation-importers-selling-currency.html
Lorrie