USD/JPY Responds to Confluent Support- Rebound to Offer Opportunity

2018-01-18 20:36:00 Michael Boutros

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USD/JPY rebounds off confluence support- Further gains likely but broader trend still lower
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USD/JPY Daily Chart

Technical Outlook: In this week’s Technical Perspective, we highlighted a key near-term support confluence in USDJPY while noting that, “price could see some rebound this week after this recent decline but the focus remains weighted to the downside while below the 200-week moving average which converges on the 2018 open at 112.50/65.”

Indeed prices posted a sharp outside-day reversal off the 110.15/23 support zone where the measured target of the December consolidation break converges on the 61.8% retracement of the September advance. Note that basic trendline support extending off the November lows also converges on this region and further highlights its technical significance.

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USD/JPY 240min Chart

Notes: A closer look at price action sees he pair trading within the confines of a well-defined descending pitchfork formation extending off the December / January highs with the lower median-line parallel further highlighting the rebound off confluence support at 110.15/23. Interim resistance stands at 111.36 and a breach above this region would suggest a larger correction is underway with such a scenario targeting 111.65 and 112.03. Broader bearish invalidation is now lowered to 112.54.

Bottom line: the immediate risk is higher but ultimately a rally should offer more favorable short entries near structural resistance of the current downslope. A break below the weekly opening range lows would mark resumption with subsequent support targets eyed at 109.86 and 109.55.

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A summary of IG Client Sentiment shows traders are net-long USDJPY- the ratio stands at +2.04 (67.1% of traders are long) – bearishreading
Retail has remained net-long since Dec 29th; price has moved 2.0% lower since then
Long positions are 1.3% lower than yesterday and 7.9% higher from last week
Short positions are 13.8% lower than yesterday and 14.8% lower from last week
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests USDJPY prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger USDJPY-bearish contrarian trading bias.

See how shifts in USD/JPY retail positioning are impacting trend- Click here to learn more about sentiment!

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