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Japanese Yen Technical Analysis: Is the Yen Nearing Another Breakdown in USD/JPY?

Japanese Yen Technical Analysis: Is the Yen Nearing Another Breakdown in USD/JPY?

James Stanley, Senior Strategist

Japanese Yen Talking Points:

  • After a quick pullback, USD/JPY has pushed right back up to resistance at a long-term zone of interest.
  • The move in USD/JPY appears to be a bit jumpy, given that USD hit a fresh yearly high yesterday while USD/JPY did not. This could push for potentially more attractive themes for Yen-weakness elsewhere, such as AUD/JPY or perhaps even GBP/JPY.
  • The analysis contained in article relies on price action and chart formations. To learn more about price action or chart patterns, check out our DailyFX Education section.

Japanese Yen sellers are back on the prowl as the currency has started to sink again on the Q2 open. As looked at a week ago, those aggressive trends of Yen weakness had finally started to pull back, helped along by a major currency pair that ran into a significant area of long-term resistance.

The pullback lasted but a few days and came-in right at the end of Q1. I had written on the topic just after USD/JPY had bottomed, highlighting two key areas of support/resistance in the pair that had already started to come into play.

A price swing at 121.41 helped to cauterize the low, and another swing at 122.41 served as resistance-turned-support as buyers pushed back up to the bigger zone of long-term resistance. And now, from a shorter-term basis, we can see where buyers are nearing a re-test of that significant spot on the chart starting around the 124.15 area after the pair has added a little more than 250 pips from that support test a week ago.

USD/JPY Four-Hour Price Chart

USDJPY four hour price chart

Chart prepared by James Stanley; USD/JPY on Tradingview

USD/JPY Longer-Term

The big question here is whether bulls can force a break and taking a step back on the chart highlights what a critical zone that resistance is. This area that spans from 124.15 up to 125.86 has held the highs in the USD/JPY pair since 2002, spanning a 20-year period where the world has changed massively. And, as looked previously, this zone was likely to become a hindrance to bulls given that historical importance and just how incredibly obvious it is on the chart.

USD/JPY Monthly Price Chart

USDJPY monthly price chart

Chart prepared by James Stanley; USD/JPY on Tradingview

USD/JPY – The Concern

I remain bullish on both USD and USD/JPY. But, this is trading so timing is always of concern. The disconcerting part here for bulls is the fact that the USD just pushed up to a fresh yearly high this week while USD/JPY did not. So, the shorter-term bullish theme may be setting a trap and that can remain the case until the 125.00 psychological level is finally taken out.

So, for a situation of this nature I might be more apt to look for the pullback first before plotting for big picture resistance breaks.

For support potential, the same levels that I looked at last week apply, and for longer-term themes the 120.00 psychological level remains very attractive, in my opinion. A push below that level would likely take out a number of stops along the way.

GBP/JPY

One pair that does carry some continued breakout potential is GBP/JPY. The chart is currently showing an ascending triangle formation that keeps the door open for bullish breakout potential. Horizontal resistance has been tested already this morning but hasn’t yet given way. Support has held on a bullish trendline and this keeps the door open for bullish breakout potential, targeting next resistance at 163.20.

GBP/JPY Four-Hour Price Chart

GBPJPY four hour price chart

Chart prepared by James Stanley; GBP/JPY on Tradingview

--- Written by James Stanley, Senior Strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX

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

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