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USDJPY Favors Upside If Risk-On Holds

USDJPY Favors Upside If Risk-On Holds

Tyler Yell, CMT, Currency Strategist


Bias: Bullish

Point to Establish Long Exposure: Break / Close > 123.77 – 124.44 Zone

Invalidation Level: Gap Open Low and Prior Resistance at 121.848

Target 1: 125.85 (2015 High)

Target 2: 127.00 Fibonacci Target based on trend progression from July 2014 low.

Both JPY & USD are seen benefitting from the ‘No’ vote in Greece over the weekend. The benefit is mainly due to safe haven capital flows. On the open, a gap in favor of the JPY seemed to show risk-off sentiment would rule the day and maybe the week or longer. However, since the gap open, the USD seems to be favored over the JPY.

From a Fibonacci perspective, 61.8% of 118.89-125.86 & May hi/lows by 121.55 seem to be crucial pivots. Add to that, USDJPY is near prior key levels as well as current technical significance of Ichimoku’s cloud & 20,2 Volatility Bands favors trend resumption as shown on the 2 charts below. Until equities really start to peel off the prior gains, JPY demand is unlikely to be sustainable.

From a volume perspective, the move into the support mentioned above hasn’t attracted much demand. When falling prices do not attract volume, the move is suspect and from a probability point of view, a corrective move that may soon resume the prior trend. In USDJPY’s scenario, the trend is higher.

Volume & Technical Levels on USDJPY

Volatility Bands Show Support & MA Acts as Trigger

The Fundamental risk is the present fear that Fed tightening could be delayed due to rising global risk. This truth would be best seen via a widening of the 2/10 UST yield spread.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.