USD/JPY: Velocity and Spikes Result in Dangerous Conditions

The USD/JPY touched values yesterday it had not traded since January of 2002. A high of nearly 134.540 was achieved before the Forex pair started to reverse off of this lofty height. Please note that the words all-time high were not used, because from May 1998 to September of 1998 USD/JPY traded above its current values. An apex of approximately 147.500 was hit in August of 1998.

While technical traders may not be interested in history lessons, what they are interested in are defined outlooks. The current value of the USD/JPY is roaming extreme values as the U.S Federal Reserve has undertaken a hawkish monetary stance and contemplates higher interest rates, as the Bank of Japan appears ready to sit on their hands and not react.

However, the inactivity of the BoJ cannot be interpreted as doing nothing. The monetary goals the Bank of Japan has for the USD/JPY are complex, and certainly behind the scenes there must be talk about policy that is ongoing. In the meantime, financial institutions and speculators are left wondering what is going to happen next as the USD/JPY trades without any intervention.

A reversal off of highs yesterday has brought the USD/JPY below the 134.000 mark again. As of this writing the USD/JPY is trading near the 133.850 mark, but conditions are fast, and volatility is a constant threat. Speculators should remain conservative in this environment and choose their entry points to ignite trades carefully. Market orders may get a trader into a wager quickly, but there is a risk that prices fills could produce unexpected results.

The bullish trend of the USD/JPY is likely not over quite yet. Determining the exact location when the USD/JPY will be overvalued remains difficult to guess. The U.S Federal Reserve is set to raise interest rates and make their pronouncement regarding their outlook for more hikes next week. Traders may get their best results by looking for support levels to be challenged and then launch buying positions to try and capture additional upside momentum.

The USD/JPY is certain to be choppy near term and speculators need to practice risk management. If the USD/JPY were to test the 133.750 to 133.600 levels it may be worthwhile to pursue a buying position that seeks a quick hitting trade upwards to capture a targeted take profit with a realistic goal.

USD/JPY Short-Term Outlook

Current Resistance: 134.150

Current Support: 133.570

High Target: 134.650

Low Target: 132.810