As much as I just wanted to write about the AUD/USD today, I thought it necessary to write about the Japanese Yen as well. There’s a lot of tension surrounding the BOJ’s meeting tomorrow. It’s not about the BOJ’s interest rate decision itself, though, but whether the BOJ will adopt a more hawkish outlook for the island nation’s economy. You see, the export-driven Japanese economy has benefited immensely from a weaker Yen since the US presidential election in November. The much weaker Yen means that Japanese exporters get much more value for exported goods. When exporters make more money, it filters through the whole Japanese economy to stimulate growth. This type of growth is exactly what Japan needs to counter a long stretch of ultra-low inflation. Let’s jump to the charts…

USD/JPY Daily Chart

It has been a pleasure selling the Yen over the last couple of weeks. Today the Yen regained some ground against many different currencies, however. Perhaps it’s the result of some profit taking as we head into the BOJ’s rate decision in a couple of hours.

I personally didn’t trade Yen pairs today, because I don’t like trading against the trend. I don’t like putting myself at a disadvantage. I have to say, if you played the Yen on an intraday basis today, you would have probably made some money if you bought it. It’s easy to be an expert in hindsight, isn’t it! Let me show you a fib retracement that I drew a while ago:

USD/JPY Weekly Chart

I can’t remember exactly when I made this chart, but it was somewhere in the last 2 to 4 weeks. I know today’s decline doesn’t prove anything, but perhaps this resistance zone I plotted on this chart could mark the start of a retracement in the USD/JPY. I suppose the BOJ’s meeting tomorrow could prove to be a determining factor in this regard.

I saw something interesting a few minutes ago. Look at this 5-minute chart:

USD/JPY 5-Minute Chart

If you ever wondered what impulsive buying looks like, here is a good example. Here we see two very large bullish candles which engulfed the price range of several other candles. It seems as though some of the big boys have pre-positioned themselves for some action on the long side. These two candles covered more than 50 pips. It is clear that the market is not sure what to expect from the BOJ tomorrow. Today we saw both impulsive selling and buying, but the sellers overpowered the buyers, of course. One thing is certain, however, the USD/JPY is at an extremely overbought level at the moment. This doesn’t necessarily mean we’re going to experience a correction right away, but it is prudent to exercise caution in buying this pair at this stage. We’ll see what the BOJ has to say tomorrow. Personally, I don’t want to try and predict the outcome of the event, but I will definitely be ready to react to it. The USD/JPY has a tendency to move in one direction for extended periods of time, so keep this in mind when you trade this pair. Whatever you do, don’t try to fade impulsive moves. It is much safer to trade with them than against them.

AUD/USD

The AUD/USD has been just the perfect pair to sell over the last couple of days. It traded to a fresh daily low today, which is very encouraging to the bears (of which I am one). Here is an hourly chart:

AUD/USD Hourly Chart

This is pretty strong selling momentum! Just a word of caution, though – on a daily timeframe, the pair seems to be reaching fairly oversold levels. Look at the following chart:

AUD/USD Daily Chart

If you're holding on to short positions on this pair, it might be wise to scale out of your position (close a part of the position) or trail your stops to lock in some gain. Tomorrow morning early, we have the RBA (Reserve Bank of Australia) meeting minutes. This could possibly produce some volatility, so keep an eye on this.

EUR/USD

EUR/USD Daily Chart

Last week I wrote about trading a breakout-retest play on the EUR/USD. Since then, there have been two opportunities to take short entries between these black and orange horizontal lines. Had you entered here, your position would have been in profit by 60 pips already. If you missed the opportunity, there might be another retest of this level if you’re lucky. The outlook for this pair is certainly very bearish, and I will be on the lookout for short-side opportunities in the days to come.

The US dollar is still retaining its bullish formation. Generally, any long US dollar exposure seems to have much potential, just be careful when trading the USD/JPY in the next day or two.

Stay nimble, and good luck trading out there!