USD/JPY Technical Outlook: Price Testing Yearly Up-Trend Support

2018-10-16 16:30:00 Michael Boutros

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USD/JPY Daily Price Chart
USD/JPY 240min Price Chart
USD/JPY Trader Sentiment
Relevant USD/JPY Data Releases
Active Trade Setups

USD/JPY testing yearly up-trend support - weekly opening range in focus
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The Japanese Yen has been on a tear since the start of the month with USD/JPY down more than 2% from the October highs. The decline is now testing yearly up-trend support – it’s the moment of truth for the bulls. Here are the updated targets and invalidation levels that matter on the USD/JPY charts this week. Review this week’s Strategy Webinar for an in-depth breakdown of this setup and more.

USD/JPY Daily Price Chart

Technical Outlook: USD/JPY has been trading within the confines of an ascending pitchfork formation extending off the yearly lows with price probing the lower parallel yesterday before reversing. The region in focus is 111.60/76 and is defined by the September opening-range highs and the 61.8% retracement of the August advance.

A break / close below this threshold would be needed to suggest a larger price reversal is underway with such a scenario targeting the 100DMA at ~111.34 and the 38.2% retracement of the yearly range at 110.76. Initial daily resistance stands at the yearly open at 112.65 backed by key resistance at 113.08/27 – we’ll reserve this threshold as our bearish invalidation level with a close above needed to mark resumption of the broader up-trend.

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USD/JPY 240min Price Chart

Notes: A closer look at near-term price action shows USD/JPY trading within a descending channel formation extending off the October highs with price currently testing resistance at 112.16/24- a breach above this mark shifts the focus towards the highlighted targets with a larger recovery in price likely to offer more favorable short-entries while below 113.27.

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Bottom line: USD/JPY is testing yearly up-slope support with the weekly opening-range taking shape just above- look for a break to validate our near-term directional bias. From a trading standpoint, price divergence into this support zone suggests the risk is for a rebound- look for the recovery IF we breach this channel here but ultimately, the broader focus remains lower sub-113.27. Highlighting the economic docket this weeks will be the release of FOMC minutes from the latest policy meeting and Japanese CPI (Consumer Price Index) with both events likely to fuel added volatility in the respective USD & JPY crosses.

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USD/JPY Trader Sentiment

A summary of IG Client Sentiment shows traders are net-long USD/JPY - the ratio stands at +1.05 (51.3% of traders are long) – extremely weak bearishreading
Long positions are17.0% higher than yesterday and 34.8% higher from last week
Short positions are 4.5% higher than yesterday and 23.9% lower from last week
We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests USD/JPY prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current positioning and recent changes gives us a stronger USD/JPY-bearish contrarian trading bias from a sentiment standpoint.

See how shifts in USD/JPY retail positioning are impacting trend- Learn more about sentiment!

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