When USD/JPY crosses key resistance, the markets will be in a state of euphoria. We see the markets going up for a while and then they will fall. It is very simple really. The higher the price goes up, the higher the risk that you will be taken.
I have watched currency markets for over 30 years and I have never seen anything like this in my time. If you look at currency markets, you will see that when the market is bullish, it is usually bullish in every direction. This can be quite a shock to some people.
In fact, there are two very different types of currencies, which can be found in high-risk currency markets. One type is the “hard money” currency, which is made of something tangible and has an expiration date. It is the most traditional type of currency and it will appreciate when things turn positive.
The other type is the “paper currency” which is not as liquid as hard money because it doesn’t have an expiration date. People who own these types of investments are generally not too worried about the market as long as the economy is doing well. Then they can sell off the paper currency if they are losing out on profits.
If you break down the behavior of the markets over the last three years, you will see that the price action was extremely bullish on one side, followed by very bullish behavior on the other side. And on both sides of the market was bearish on one side and very bullish on the other side.
If the USD/JPY crosses key resistance at 1.3125, it is possible that the markets will become very bearish as the RBA rate decision will be released. The RBA will start raising interest rates as the economy turns down. The timing could not be better because of the current news that the US economy is losing momentum.
If the USD/JPY reaches the support level at 1.35, then we are going to start seeing a reverse rally. pattern that we saw in 2020. You may think that this is just another overreaction to the news but the market has been bearish on one side and bullish on the other side for some time.
You must know that if the USD/JPY crosses key resistance at the right time, the markets are going to turn bearish. It does not matter if you think the economy will do well or not.
On the other hand, if the market goes into a bearish rally, then it means that the RBA is doing its best to help the economy. If the RBA starts raising interest rates, the market is going to go back in the direction that it was previously.
If the market falls back into the support area, then you should expect that the RBA is going to come in and raise rates to take care of it. Even though the news will be bad on both sides of the trade, it is still possible to get a profit on this trade.
At the same time that you are entering your trades, the USD/JPY is going to fall back to resistance at a low of around 1.5 again and you should expect that the markets will continue to fall to a bearish high. At this point, the market is ready for a consolidation break in which case the markets will start looking to get back to the lower end of its range.
If you think the RBA comes in with the interest rate hike and starts to raise interest rates, you can expect a bounce in the market that will put the markets back on its neutral line. And once again, the higher the market moves, the more you will get a profit.
This type of bounce is going to be much bigger than any that we had seen in previous years. But you must know that it is not enough to make the market bearish again and the move into the higher end will need to be done by a much higher breakout.