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Expect Volatility in Yen to Continue Next Week

By , Sr. Technical Strategist  and  Joel Kruger, Technical Strategist
23 March 2012 20:47 GMT

Dow Jones FXCM Dollar Index (Ticker: USDOLLAR)

Daily

Expect_Volatility_in_Yen_to_Continue_Next_Week_body_usdollar.png, Expect Volatility in Yen to Continue Next Week

Prepared by Jamie Saettele, CMT

Jamie – The Dow Jones FXCM Dollar Index (Ticker: USDOLLAR) continues to threaten and fail at the resistance line that extends off of the October and December highs. A break above would signal completion of the consolidation since August (nearly 8 months) and a significant breakout. The weak end to this week’s action may be a trap. Support is strong just below the current level from the 20 day average, channel and weekly low at 9930. Reward/risk is favorable for bulls.

JoelThe market remains locked in a multi-day consolidation and should continue to chop between the 9,600-10,100 area. Overall, we do retain a bullish outlook given the broader recovery structure out from a major base in 2011 and therefore recommend looking to buy on dips in favor of an eventual break above 10,100.

Euro / US Dollar

Daily

Expect_Volatility_in_Yen_to_Continue_Next_Week_body_eurusd.png, Expect Volatility in Yen to Continue Next Week

Prepared by Jamie Saettele, CMT

Jamie – The EURUSD is testing the 2/9 high / 61.8% retracement of the decline from 13486 (13301) and 3/8 high (13290). This is the 3rd time that the EURUSD has tested 13290 this month. Additional strength faces resistance from the former trendline near 13370 on Monday (the first day of the month high is at 13356) but the inability of bulls to penetrate 13300 may be a tell and offers a high reward/risk (although perhaps low probability) bearish opportunity against 13360.

JoelThe market has been well supported on the latest dip towards key support at 1.2975 and the subsequent bounce back above 1.3100 delays bearish prospects and opens the door for additional consolidation over the coming days. The key levels to watch above and below come in by 1.3315 and 1.2975 respectively and a break and close above or below will be required for clearer directional bias. In the interim we remain sidelined.

British Pound / US Dollar

Daily

Expect_Volatility_in_Yen_to_Continue_Next_Week_body_gbpusd.png, Expect Volatility in Yen to Continue Next Week

Prepared by Jamie Saettele, CMT

JamieThe GBPUSD rally from the 3/12 low (15602) has stalled at the 200 day average / 2/8 high. Bulls have failed to penetrate (for more than a few days) the 200 day average 3 times in the last 2 months, which is a warning that the next large move is down. Throw in the 3 wave rally from the January low and a strong bearish case can be made from current levels. Near term focus remains on 15750 as long as price is below 15990.

JoelThe market has been mostly confined to trade between the 100 and 200-Day SMAs since early February and until we see a clear break on either end, we will continue to see some choppy range trade. Key levels to watch above and below come in by 1.6000 and 1.5600 respectively and we will wait for a break on either end to establish a clearer directional bias.

Australian Dollar / US Dollar

Daily

Expect_Volatility_in_Yen_to_Continue_Next_Week_body_audusd.png, Expect Volatility in Yen to Continue Next Week

Prepared by Jamie Saettele, CMT

JamieAfter trading to a March low on Thursday (10335), the AUDUSD retraced all of Thursday’s decline on Friday and settle at 10480 resistance. I still favor the downside towards 10200 (100% extension of 10856-10423 decline) and 10145 (January low) but price needs to stay below 10636. The confluence of the 3/21 high and 61.8% retracement of the decline from 10636-10338 at 10520/30 is probably strong resistance if reached.

JoelOur bearish outlook in this market is being reaffirmed with the latest pullback and we continue to project deeper setbacks over the coming days and weeks back below parity. A fresh lower top now looks to be carving by 1.0855 and only back above 1.0640 would delay and give reason for concern. From here, look for the latest break below 1.0420 to open the next downside extension towards 1.0200 over the coming sessions.

US Dollar / Japanese Yen

Daily Bars

Expect_Volatility_in_Yen_to_Continue_Next_Week_body_usdjpy.png, Expect Volatility in Yen to Continue Next Week

Prepared by Jamie Saettele, CMT

JamieThe USDJPY drop into 8200 may complete a corrective decline from 8417. The 8200 level is defended by the 20 day average, 50% retracement of the rally from 8001 and 3/13 low. A bullish bias is warranted as long as price is above the March low of 8058. Interim resistance next week is 8295 and 8330. 8160 would be support is 8195 fails to hold.

JoelThe market is doing a good job of showing the potential for the formation of a major cyclical bottom after closing above the weekly Ichimoku cloud for the fist time since July 2007. This further solidifies basing prospects and we could be in the process of seeing a major bullish structural shift that exposes a move towards 85.00-90.00 over the coming weeks. At this point, only back under 77.00 would delay outlook and give reason for concern. However, in the interim, it is worth noting that gains beyond 84.00 over the coming sessions could prove hard to come by with shorter-term technical studies needing to unwind from their most overbought levels in over 10 years before a bullish continuation. As such, we would caution buying breaks above 84.00 for the time being and instead recommend looking for opportunities to buy on dips towards 80.00-81.00. A short-term double top on the daily chart could open a move into our desired buy target area.

Euro / Swiss Franc (Joel)

Daily

Expect_Volatility_in_Yen_to_Continue_Next_Week_body_eurchf.png, Expect Volatility in Yen to Continue Next Week

Prepared by Jamie Saettele, CMT

JoelSo long as this market remains well supported ahead of 1.2000, we like the idea of looking for opportunities to buy the cross rate in anticipation of an eventual upside acceleration back above the recent highs at 1.2150. The contraction in volatility in recent weeks also suggests that we could soon see a major breakout which we project will be to the upside. Look for a break and daily close back above 1.2070 to confirm bias and accelerate gains. Only back under 1.2000 negates and gives reason for pause.

Canadian Dollar / Japanese Yen (Jamie)

Daily

Expect_Volatility_in_Yen_to_Continue_Next_Week_body_cadjpy.png, Expect Volatility in Yen to Continue Next Week

Prepared by Jamie Saettele, CMT

Jamie – The decline from 8496 is probably the beginning of a 4th wave correction in the CADJPY. Corrective moves unfold in 3 waves (A-B-C) thus the 8496-8185 decline composes wave A. Wave B is unfolding now and resistance is 8337-8365. I favor shorts into that zone towards the range low 8183. The March low at 8040 is an objective.

--- Written by Jamie Saettele, CMT, Senior Technical Strategist for DailyFX.com

To contact Jamie e-mail jsaettele@dailyfx.com. Follow him on Twitter @JamieSaettele

To be added to Jamie’s e-mail distribution list, send an e-mail with subject line "Distribution List" to jsaettele@dailyfx.com

Jamie is the author of Sentiment in the Forex Market.

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23 March 2012 20:47 GMT