The dollar-yen chart shows a high degree of success in the Japanese central bankdefense of 76 yen as a support level. It’s unusual for a central bank to be able to draw a line in the sand and successfully defend it. Usually this type of defense is a signal to go short but in this case the shorts were burned.
A support level is created when the supply runs into a wall of demand. Every time selling pressure approaches a particular level it is supported by buyers who have a more positive view of the future.
This temporarily halts the price decline. In a positive sense, when all the buyers at that level have bought, the price has nowhere to go but up as buyers have to bid higher to get into a position. In a negative sense, when buyers will only bid at lower levels, sellers have to lower their ask to liquidate their position. With such a shortage of buyers, the price falls to new lows.
Technically there is an important development on the chart and this is the creation of a new resistance level. A resistance level is created when the demand runs into a solid block of supply. Every time buying pressure approaches a particular level it is overwhelmed by sellers, which temporarily halts the price advance. When all the sellers at that level have sold, the price has nowhere to go but up as buyers have to bid higher to get a position.Page 1 of 3 | Next Page