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USD/JPY Breaks to 6 Month High – Eyes Next Resistance

Dollar/Yen finally made a convincing break above the 84.50 level. It not only settled above this level, but is pushing forward towards the next resistance line.

USD/JPY now trades at 85.18. Such level were last seen at the end of September 2010. The stubborn peak of 84.50, which capped the pair towards the end of 2010 was broken.

It wasn’t easy. Already on Friday, after the US Non-Farm Payrolls, the pair breached these levels, but this was temporary and based on abnormal NFP Friday. Dollar/yen quickly descended.

The real break came after another important US event – the release of the FOMC meeting minutes. As seen in recent speeches, the hawks at the Federal Reserve are more hungry for their prey. There’s a growing notion that the bond buying scheme will end in June.

Without QE2 or QE3, US bond yields will start rising. There’s a strong correlation between US yields and USD/JPY. While the economic situation in the US could be far better, an improving labor market and a hawkish central bank sure help the currency.

On the other side of the Pacific, Japan is still struggling. This began before the devastating, horrific earthquake, tsunami and nuclear disaster. Absolutely no signs of inflation are seen there, the economy is on the brink of recession, and strong yen weighed on imports.

The coordinated intervention to weaken the yen succeeded this time. It isn’t the money spent by central banks, but the strong message they sent. Also here, it took some time – first came stabilization at around 81, and then came the steady move higher.

The next level to watch is 85.93. This was the highest level the pair reached after the failed BOJ intervention in September. Next are 87 and 88.12. Below, 84.50 turns into support, followed by 84.

For more levels, analysis and upcoming events, see the USD/JPY forecast.

Yohay Elam

Yohay Elam

Yohay Elam: Founder, Writer and Editor I have been into forex trading for over 5 years, and I share the experience that I have and the knowledge that I've accumulated. After taking a short course about forex. Like many forex traders, I've earned a significant share of my knowledge the hard way. Macroeconomics, the impact of news on the ever-moving currency markets and trading psychology have always fascinated me. Before founding Forex Crunch, I've worked as a programmer in various hi-tech companies. I have a B. Sc. in Computer Science from Ben Gurion University. Given this background, forex software has a relatively bigger share in the posts.