Time to Buck the Trend in USD/JPY?
- Sentiment profile remains worrisome from a contrarian perspective
- Major resistance hurdle overhead
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The sentiment picture in USD/JPY continues to disturb us a little bit. While most of the other major currencies have seen sentiment revert to more neutral levels over the first few trading days of 2014, USD/JPY has bucked this trend with positive sentiment towards the exchange rate not really budging from historical extremes.
We rely primarily on the Daily Sentiment Index (DSI) for sentiment readings and since the middle of December the percentage of bulls in USD/JPY using DSI has been stuck between the high 80’s and mid-90’s. While not impossible, it is usually much more difficult for an instrument to embark on any sort of meaningful move higher with so many participants seemingly already on board. With a big resistance overhead in the form of the 61.8% retracement of the 2007 to 2011 decline at 105.55, we wonder if the rate is becoming prone to some sort of countertrend shakeout in the sessions ahead. Given USD/JPY has already failed once near 105.55, we like the risk to reward of going short on a re-test of that resistance zone if it gets there in the next few days.
USD/JPY Daily Chart: January 9, 2014
Charts Created using Marketscope – Prepared by Kristian Kerr
Key Event Risks in Coming Sessions:
LEVELS TO WATCH
Resistance: 105.55(Fibonacci), 105.85(Fibonacci)
Support: 104.00 (Gann), 103.35 (Gann)
Strategy: Sell USD/JPY
Entry: Sell USD/JPY at 105.35
Stop: 1-daily close above 105.85
--- Written by Kristian Kerr, Senior Currency Strategist for DailyFX.com
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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.