USD/JPY TRADING Strategy: NET SHORT at 110.09

  • Japanese Yen pullback expected to give way to down trend resumption
  • Trade war jitters may serve as Yen catalyst after key event risk passes
  • Waiting for opportunities to add to short position upon confirmation

Find out what other traders’ USD/JPY positions say about the on-coming price trend!

The US Dollar turned lower against the Japanese Yen as expected after prices broke below trend support guiding the upswing from late March. Prices declined to test support near the 108.00 figure, meeting the initial objective of a short trade from 110.09.

A subsequent recovery has brought them back toward the site of the breakout. A daily close above resistance in the 110.04-27 area would open the door for a test of trend resistance guiding the longer-term down move since January 2017. Its outer layer is now at 111.67.

US Dollar vs Japanese Yen daily price chart

Broadly speaking, recent gains appear corrective absent a confirmed breach of trend line resistance as well as the May 21 high at 111.40. The fundamental picture seems to reinforce the case for weakness, with risk aversion expected to drive the anti-risk Yen higher amid growing trade war concerns.

President Donald Trump deepened a rift between the US and its major allies at a G7 leaders’ summit in Quebec. He retroactively withdrew support for a joint post-conference communique and lobbed attacks at Canadian Prime Minister Justin Trudeau and EU officials via Twitter after leaving the gathering early.

The markets are yet to show a meaningful reaction to the emerging crisis. Traders’ attention seems to be diverted as Mr Trump sits down for a historic meeting with North Korean leader Kim Jong-un. Policy announcements from the Fed and ECB follow immediately thereafter, dominating the spotlight.

Once these have passed however, it ought to emerge that – even under the best of circumstances – the practical global growth implications of a breakthrough at the Trump/Kim meeting pale in comparison to a trade war between the world’s largest economies. That will probably re-energize the Yen’s advance.

With that in mind, opportunities to add to short exposure will be actively sought once near-term signs of topping appear and are subsequently confirmed, at least via a breakout on the four-hour chart. A stop-loss will be activated if the longer-term down move is invalided on a daily closing basis.

FX TRADING RESOURCES

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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