USD/JPY may be heading for 109 to 110? Here's why.

The markets have stabilized a bit in the short term as the world sees that the U.S.government and U.S. Fed are trying to fix the sub-prime/credit crunch problems.

 

Bernanke tries to put a “safety net” under stocks.

They even know from Ben Bernanke’s speech yesterday that the Fed is fully prepared to cut rates again to “insure” (and ensure) stocks from falling.

 Then I also ran across this story about how the Japanese housewives and pensioners were positioned:

 Generally “Moms and Pops” are usually on the wrong side of the market.

Feb. 13 Dollar sales by Japanese individual investors on the Tokyo Financial Exchange rose to the highest since June yesterday.

Housewives, pensioners and businessmen accelerated sales of the U.S. currency by capitalizing on yesterday's 0.3 percent advance against the yen, betting it will resume its eight-month decline.

Technical Divergences in the RSI Indicator are in the favor of a short term pop upward for USD/JPY.

My hopes are that this recent upside breakout in USD/JPY will catch them on the “wrong side of the market” for our benefit.

Coupled with this thought ….as I look at the charts…I see divergences. This is simply when an indicator moves one way, yet the price action actually moves the opposite. This usually signals a strong temporary “pop” in a currency. The last time this happened, it drove it up towards its downtrend line. I’m anticipating this to happen again. Check out the chart below.

Divergences cause short term “pops” in currencies.

Upon taking a closer look at USD/JPY, on the 4 hour, 40 day chart… I saw new buying pressure coming into the dollar. It broke above the horizontal resistance line (black) below. This pushed it out of its sideways range.

 

Downtrend, Sideways Range, then Uptrend?

USD/JPY on its way to the 109 to 110 levels?

 I believe as we exercise some patience, we’ll see this pair hit our 108.55 target (profit target for the 1^st ½ of the trade). Then the pair should head towards the 109-110 levels.

 So as long as the Dow and Nikkei don’t turn down harshly in the near term, this is how I anticipate it all playing out.

Sean Hyman

Editor/Trader

www.money-trader.com