USD/JPY makes all the difference…

Throughout Thursday’s U.S. trading session, momentum in the USD/JPY was key to confirming the rally in equities. Unlike the early equities rally on Wednesday morning – accompanied by little-to-no selling of Yen – Thursday’s price action proved Yen was being sold, which rallied the USD/JPY above the prior resistance between 90.50 and 90.65.

5-27-2010 forex daily full.png

The rate at which Yen is sold determines risk appetite and risk aversion. Generally, when Yen is being sold it indicates that traders want to borrow that currency to fund the purchase of higher-yielding assets; when Yen loses ground against the U.S. Dollar, it drives a move higher on the USD/JPY. The same can be said of the EUR/JPY: as the battered Euro gains on the Yen, the EUR/JPY moves higher.

Prices have rallied through the resistance of an Ascending Triangle pattern at 90.67 – this price was the buy trigger for an Initial Movement-Momentum entry, the type of entry that is ideally set up with a low, one- to three-bar Initial Trend reading (which confirms that prices are moving in a sideways range). As we see from the low one-bar Breakout reading, very little momentum accompanied the pattern break; however, with Autochartist’s Forecast area waiting nearby between 91.02 and 91.49, it’s likely that prices will reach the bottom of that range.