Big call given that we normally trade in a 15 pip range but I have a feeling that we could see a sharp move in USD/JPY, and I suspect that it will be down. There is plentiful buying interest between 77.50/65 at the moment so I would certainly not enter the market near current levels at 77.85. I’d rather wait for an intraday rally to 78.20, where corporate and real-money offers are waiting. I will start selling there, with a tightish stop, and see how the market develops from there.
My logic is that the market has been piling into long positions on the JPY crosses in the expectation of a return to risk-on conditions brought on by the Fed’s QE3. But the market is slightly unwilling to embrace this risk-on sentiment, as can be seen by the fact that the AUD is not out-performing the other majors. Therefore I’m concluding that the USD may well stay heavy after the FOMC statement but the JPY crosses will fall in a buy-rumour-sell-fact event.
If that happens, than USD/JPY could well fall below 77.50 and start setting off some more big stop-loss sell orders. That’s my theory anyway.