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Japanese Yen Price Outlook: USD Reversal Risks Deeper USD/JPY Losses

Japanese Yen Price Outlook: USD Reversal Risks Deeper USD/JPY Losses

Michael Boutros,
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The Japanese Yen snapped a four-day losing streak against the US Dollar yesterday with price marking a reversal pattern off daily confluence resistance. These are the updated targets and invalidation levels that matter on the USD/JPY price charts this week.

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Japanese Yen Price Chart – USD/JPY Daily

Japanese Yen Price Chart - USD/JPY Daily - US Dollar vs Japanese Yen Trade Outlook - Technical Forecast

Chart Prepared by Michael Boutros, Technical Strategist; USD/JPY on Tradingview

Technical Outlook: In my previous Japanese Yen Weekly Price Outlook we noted that the USD/JPY rally was, “testing downtrend resistance here and puts the immediate advance at risk while below 108.42.” Price has been testing this key threshold for the last two-weeks with USD/JPY posting and outside-day reversal off the highlighted resistance confluence yesterday. Note that the 1.5% parallel of the broader descending pitchfork we’ve been tracking off the yearly highs converges on the 50% retracement of the yearly range here and continues to highlight this critical pivot zone.

Key daily support rests at the June low / 38.2% retracement at 106.78/94 – a break / close below this level is needed to mark resumption of the broader downtrend targeting 106. A topside breach would shift the focus towards subsequent resistance objectives at 109.02, the 61.8% retracement at 109.35 and the objective yearly open at 109.67.

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Japanese Yen Price Chart – USD/JPY 120min

Japanese Yen Price Chart - USD/JPY 120min - US Dollar vs Japanese Yen Trade Outlook - Technical Forecast

Chart Prepared by Michael Boutros, Technical Strategist; USD/JPY on Tradingview

Notes: A closer look at yen price action shows USD/JPY trading within the confines of a near-term descending pitchfork formation extending off the highs. A break below the weekly opening range lows yesterday has seen price fall more than 0.9% with the decline now testing the 61.8% retracement of the August decline at 107.45. Look for a reaction on a drop into 107.28 IF reached with a break / close below needed to keep the near-term short-bias viable targeting 109.94 and the June lows at 106.78.Initial resistance stands with the 2017 low-day close / weekly open at 107.84/95 with bearish invalidation set to Friday’s high at 108.18.

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Bottom line: The recent reversal pattern off downtrend resistance risks further losses for USD/JPY while below 108.18. From a trading standpoint, looking sideways-to-lower heading into Friday’s highly anticipated US Non-Farm Payrolls report. We’ll favor fading strength while within this formation targeting a move towards the 107-handle. Review my latest Japanese Yen Weekly Price Outlook for a deeper look into the longer-term USD/JPY technical trading levels.

Japanese Yen Trader Sentiment - USD/JPY Price Chart

Japanese Yen Trader Senitment - USD/JPY Price Chart - US Dollar vs Japanese Yen Technical Outlook
  • A summary of IG Client Sentiment shows traders are net-long USD/JPY - the ratio stands at +1.06 (51.41% of traders are long) – neutral reading
  • Long positions are 8.79% lower than yesterday and 5.61% lower from last week
  • Short positions are 5.02% lower than yesterday and 1.92% higher 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. Yet traders are less net-long than yesterday & compared with last week and recent changes in sentiment warn that the current USD/JPY price trend may soon reverse higher despite the fact traders remain net-long.

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


Key US / Japan Data Releases

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- Written by Michael Boutros, Currency Strategist with DailyFX

Follow Michael on Twitter @MBForex

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