USD/JPY Approaches Key Slope of Influence

2017-02-07 17:52:00

Michael Boutros,

Talking Points

USDJPY approaching key technical support- Shorts at risk above 111
Updated targets & invalidation levels
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USD/JPY Monthly

USD/JPY Daily

Technical Outlook:USDJPY is approaching a critical support zone at 111.07/45 – this region is defined by the 38.2% retracement of the late-June advance, the May high & the lower median-line parallel extending off the September low. Note that this zone also converges on a long-term slope line extending off the May 2013 highs (monthly chart). The immediate short-bias is at risk heading into this region with resistance seen at the monthly opening-range high / channel resistance at 113.95.

USD/JPY 120min

Notes: A closer look at price action highlights ongoing momentum divergence into these lows and while we can’t rule out another run at key support, we’re generally looking for exhaustion down here. Interim resistance stands at 112.57 backed closely by the monthly open at 112.80. A breach / close above this threshold is needed to validate a near-term reversal targeting 113.48 & 113.93- be mindful of the trendline extending off the highs (red). Note that we’ll have to adjust this retracement in the event a new low in price is registered.

A break below key support risks accelerated losses for the pair with such a scenario targeting initial support objectives at the 100DMA (~110), 109.76 & the 50% retracement at 108.77. A quarter of the daily average true range (ATR) yields profit targets of 33-36 pips per scalp. The economic docket is rather light until the end of the week with the U.S. University of Michigan surveys on tap. That said, look for broader market sentiment to drive for now.

A summary of the DailyFX Speculative Sentiment Index (SSI) shows traders are long USDJPY- the ratio stands at +1.51 (60% of traders are long)- weak bearishreading
Long positions are 9.0% lower than yesterday and 2.2% below levels seen last week
Short positions are 11.8% higher than yesterday and 12.4% above levels seen last week
Open interest is 1.7% lower than yesterday but 5.7% above its monthly average
While the current SSI profile continues to offer a mixed outlook for the pair, it’s worth noting that the recent narrowing in the ratio (decrease in long positions) on falling open interest suggests that the bulls may be giving up here and leaves the immediate short-side vulnerable as price approaches key support.

Relevant Data Releases