Japanese Yen Technical Forecast: USD/JPY Bulls Brace for Correction

2022-10-30 03:00:00

Japanese Yen Technical Price Forecast: USD/JPY Weekly Trade Levels

Japanese Yen technical trade levels update – Weekly Chart
USD/JPY responds to confluent resistance- risk for larger correction within uptrend
Support 146.23, 145, 142.86 (key) - Resistance 151.90-152 (key), 157.80, 160.40

The US Dollar was virtually unchanged against the Japanese Yen this week despite a range of more than 3% in USD/JPY. While the broader outlook technical outlook is weighted to the topside, the threat of a larger correction within the uptrend remains while below 152 and the bulls may continue to be on the defensive the days ahead. These are the updated targets and invalidation levels that matter on the USD/JPY weekly price chart. Review my latest Weekly Strategy Webinar for an in -depth breakdown of this USD/JPY technical setup and more.

Japanese Yen Price Chart – USD/JPY Weekly

Chart Prepared by Michael Boutros, Technical Strategist; USD/JPY on Tradingview

Technical Outlook: In last week’s Japanese Yen Technical Forecast I noted that the USD/JPY, “breakout is extending into confluent uptrend resistance- risk for price inflection / exhaustion in the week ahead. From a trading standpoint, look to reduce portions of long-exposure / raise protective stops on a stretch towards parallel resistance…” The rally faltered into highlighted resistance at the 1989 high / 1986 low at 151.90-152 (high registered at 151.94) with price reversing sharply to close down more than 0.7% on the week. USD/JPY was poised to mark a weekly doji on Friday with price holding just above the 2019 parallel – is a larger correction on the horizon?

Note that last week highlighted, “ongoing divergence since the May high and looking to see if this stretch marks a third reference high, raising the threat for near-term exhaustion.” Indeed weekly RSI has marked a third divergence reference point and further highlights the threat of a larger pullback here. The warning flags are up.

Initial weekly support rests with the 1998 high-week close at 146.23 backed closely by the 145-handle- a break / close below this threshold would threaten a larger correction within the yearly uptrend with key support eyed at the highlighted confluence zone around the 23.6% retracement of the yearly range at 142.86. A topside breach / weekly close above 152 is needed to mark resumption of the broader uptrend towards subsequent resistance objectives at the 1990 high-week close at 157.80.

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Bottom line: The USD/JPY rally has responded to technical resistance and threatens a larger correction within the confines of the yearly uptrend. From a trading standpoint, losses should be limited to the yearly channel support (blue) IF price is price is heading higher on this stretch with a breach / close above last week’s high needed to mark resumption. Keep in mind we have the FOMC interest rate decision and US non-farm payrolls (NFP) on tap next week – stay nimble into the releases and expect volatility. I’ll publish an updated Japanese Yen Short-term Outlook once we get further clarity on the near-term USD/JPY technical trade levels.

Japanese Yen Trader Sentiment – USD/JPY Price Chart

A summary of IG Client Sentiment shows traders are net-short USD/JPY - the ratio stands at -2.24 (30.82% of traders are long) – typically bullish reading
Long positions are 15.46% higher than yesterday and 23.27% higher from last week
Short positions are 0.59% lower than yesterday and 34.05% lower from last week
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests USD/JPY prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. From a sentiment standpoint, the recent changes in positioning warn that the current USD/JPY price trend may soon reverse lower despite the fact traders remain net-short.