USD/JPY falls after massive spike

NEW YORK (Forex News Now) – During last night’s Asian trading the Dollar / Yen pair saw a significant charge out of the gates as the Chinese released stronger than expected manufacturing numbers, signaling that the world’s economic health might be stronger than thought. Unfortunately for dollar bulls, this move did not last for long.

After rising all the way to an FX rate of 81.43 in the first few hours of Tokyo trading, the dollar has been forced back down to the previous norm of the 80 handle, in a sign that traders are insistent on testing the Bank of Japan’s resolve, this happened almost as fast as the spike upwards did.

The Bank of Japan has been silent about the FX rate of the pair, as the Yen has been flirting with all-time highs against the U.S. dollar. While the central bank did intervene in the currency markets a short time ago, it appears that they have given up for the time being. The sentiment for buying Yen is simply too strong at this time, with central banks joining the fray and buying Yen as well. (China, Korea, and Switzerland are all publicly acknowledging this.)

The added pressure of central banks interfering in the FX rate of the Yen is one that the central bank may simply not be able to fight. Because of this, traders are emboldened to short this pair, and as such, longs are not advised anytime in the near future.

The spike did give us a clue as to where renewed shorts might be triggered in the future, as it shows significant resistance at the mid-81 handle. Because of this, it is advised that traders simply wait for the trade to come to them, as this period of consolidation is to be expected before a serious attempt at all-time lows is made.