Long USDJPY has been such a dangerous trade for sovereign funds and institutional traders these past couple of years that it’s been nicknamed the “widow-maker” by players who know. Now however it’s looking more and more like the great bear has finally run its course following last week’s 6-month high.

From a technical perspective the G-7 finance chiefs agreed to intervene at an opportune time to achieve the desired effect. USDJPY failed to bounce off the historic ’95 low at 80.00 the week of 3-14 following the Japanese tragedy, and plunged all the way to 77.00, before central bankers stepped up to support the market.  The Bank of Japan likely found the job of knocking their currency down from such a historically expensive level a bit easier with the help of the other G-7 members. Those same two facts – the yen being at a historically high level, and coordinated G-7 intervention for the first time in more than ten years –makes for a potentially attractive market environment, particularly if USDJPY does retrace a portion of the previous rally.

Before we can definitively say we have a monthly reversal however, price needs to close above both its monthly directional line at approx 84.00, and the 4-year bear trendline which intersects this week at approx 86.00.  This all should make for an interesting spring.            

To attend a live, interactive demonstration on how we use price to determine market direction on all time frames click on Directional Line Overview    

Jay Norris is host of The Daily Forex Report at Clovernest.com  and the author of Mastering the Currency Market, McGraw-Hill, 2009, and the soon to be released Mastering Trade Selection & Management, McGraw-Hill, 2011.

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