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[Inside Forex] Will USDJPY150 Be Tested?

With USDJPY trading at 32-year highs, historic chart levels have little meaning. This leaves psychological levels as the key points to watch.

In this regard, the focus is on USDJPY 150, which is not just a major but a mega psychological level.

It is also the current BoJ/MoF line in the sand. This follows a failed attempt to defend the psychological 145 level.

As I pointed out in Inside Forex: The Boj Strikes Back, unilateral intervention, such as the current attempt to contain the relentless rise in USDJPY, tends to have diminishing returns the more times it is employed.

This does not mean it can’t inflict some pain on short-term traders as can be seen by this one minute chart (courtesy of The Amazing Trader)  where USDJPY plunged from 149.29 to 148.12 in a matter of minutes only to bounce back almost as quickly.

However, unless BoJ intervention is accompanied by a tighter monetary policy or a Fed pivot, both unlikely at the moment, efforts to contain the USDJPY will remain a. challenge.

If I was the BoJ…

If I was the BoJ I would change my intervention tactics to buy some time by restoring a two-way risk. I would not make intervention a one-shot event. I would intervene at successively lower levels (e.g. 149=>148=>147=>146) until the selling caused some technical damage.

I would then leave the intervention unsterilized but this would run counter to an easy monetary policy.

Will 150 be tested?

My theory of trading inevitability says the market has to, at sone point, make a serious run at 150 to see how hard it will be defended. Of course, the BoJ can be cagey and let the market run through it and then come in hard with intervention. Whatever the case, we are in a car and mouse game where the BoJ intervention will make 149-150 a nervous zone.

Otherwise, unilateral intervention will likely continue to have diminishing returns unless tactics are changed as I suggested or there is a change in the fundamentals.

So. to sum up, what complicates the intervention effort is that it is not being accompanied by other policy measures. This leaves 150 as a mega psychological level where logic says it will be defended but, in the end, will dictate whether the market takes a breather or pushes further into uncharted territory. To shift the focus from 150, however, sub-148 and then sub-145 would need to trade.

Jay Meisler



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