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Brexit Fears Waxing and Waning Send USD/JPY Driving and Draining

Brexit Fears Waxing and Waning Send USD/JPY Driving and Draining

Jeremy Wagner, CEWA-M, Head of Education

Talking Points

-USD/JPY appears to be tracking GBP/USD as Brexit polls dominate

-USD/JPY is bound by 105.72 support and 108 resistance

-Use the Grid Sight Indicator to pin point shifts in intraday momentum

The EU referendum vote is taking center stage and GBP/USD risks are tracking the Brexit vote projections. One market to keep an eye on while the polls hit the wires is USD/JPY. USD/JPY appears to be chasing the moves of GBP/USD, at least temporarily.

[Image 1]

This correlation hasn’t been an exact one for one, nothing really is. As we can see above, the two pairs overlay each other quite well, with the brief exception of the NFP release on June 3. Perhaps we can use USD/JPY as a proxy, especially if its patterns, support and resistance levels are more obvious.

The near term pattern shows a wave relationship appearing at today’s low of 105.72. A break below this level likely leads to a break below the May 3 low of 105.55. If today’s low holds, then we may see the pair trade up near the June 7 high near 108 in the coming days.

Therefore, we have our levels of 105.72 to watch on the downside and 108 on the upside.

Using the Grid Sight Indicator (GSI), we can pinpoint shifts in intraday momentum to see clues if the support level is going to hold or break.

For those that are unfamiliar, GridSight is a powerful big data indicator that can give you a look at the market by analyzing millions of historical prices in real time. By seeking out similar patterns, GSI helps you use that data to trade important levels coming up.

The Speculative Sentiment Index (SSI) is another tool that can help us identify shifts, this time in retail positioning. The current SSI reading at the time of this writing shows +3.41 where 77% of the retail traders are positioned long. If this reading continues to grow, it can indicate more bearish potential in the pair. On the other hand, if this reading drops, it can suggest a potentially bullish shift in the USD/JPY exchange rate.

Therefore, if we follow the GridSight Indicator in conjunction with SSI, we can determine if this support level is going to hold give way.

---Written by Jeremy Wagner, DailyFX Education

Having a method to time trade entries is important. Managing your risk may be even more important. Learn how the better performing traders manage their risk by reviewing our Traits of Successful Traders research. [Free registration required.]

Follow me on twitter at @JWagnerFXTrader .

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