Bias: USDJPY Bias toward 200-DMA On Ichimoku Breakout
Point to Establish Long Exposure: Close above 105.54 (Friday High)
Target: 107.24 200-DMA
Invalidation Level: Daily Close below 103.15 October 15 low
Fundamental & Technical Focus:
The price of USD/JPY hit a three-month high on Friday before backing off on weaker than expected Consumer Sentiment in the morning, and an initial shock sell-off in the afternoon on news that the FBI was re-opening an investigation on the Democratic Presidential Nominee, Hillary Clinton.
However, the move higher was stretched by a few standards, and a short-term pullback may provide the right opportunity for a higher base to form that would allow a strong move toward the 200-DMA at 107.24.
Recommended Reading: USD/JPY Technical Analysis: 3-Month Highs Turns Focus on 108
Chart:
Chart Created by Tyler Yell, CMT. Courtesy of TradingView
Beyond the Friday afternoon volatility, there are signs that a base is being put in on USD/JPY that continues to make the upside attractive. The most convincing technical clue of a potential base is thanks to the Japanese Technical Indicator, Ichimoku. Ichimoku on the Daily Chart shows the price of USD/JPY and the momentum line (bright green) above the Ichimoku Cloud, which acts as a trend filter.
While the recent stretch may mean that a USD/JPY pullback could take us back toward the September 2 intraday high of 104.32, the next breakout above the Friday high of 105.54 could be the initial signs that a broader rise in USD/JPY is resuming.
The volatility on USD/JPY has been lower than normal, which has aligned with a steady rise in Japanese Government Bonds and a fall in the VIX. This environment could be ripe, as the Bank of Japan appears to be setting the stage for Abenomics Arrows 2 & 3 that include fiscal policy and structural reform.
We’ve also been watching the aggressive drop in the CNH, which could prompt export focused economic-rival Japan to take further measures to keep the JPY strength under control. While the fundamental stories are compelling, price remains the number one indicator, and until we break above the intraday high of Friday, October 28 we’ll remain on the sideline awaiting the Bullish pressure to build.
USDJPY Resistance & Support Levels
2nd resistance: 107.24 200-DMA
1st resistance: 105.79 78.6% Retracement of July/August Fall
Spot: 104.80
1st support: 104.32 September 2 Intraday High
2nd support: 103.15 October 15 low
