USD/JPY Analysis:
- USD/JPY dropping towards a major level of support as the USD sell-off continues
- Volatility expected to increase over the next week as both countries are set to release Q2 GDP data
- IG Client Sentiment data showing a mixed reading as the majority of USD/JPY traders remain net long despite increased short positions in the last 24 hours
USD/JPY Approaches Major Level of Support
The recent decline in the dollar (often viewed via the US Dollar Index) has gained momentum in light of negative real yields (nominal interest rate minus inflation) – the byproduct of the expansionary monetary policy currently under way.
Current price action is framed within the larger picture where there appears to be a descending triangle, although the criteria isn’t fully met given the inconsistency around support (horizontal blue line).
Looking at the monthly chart, continued dollar depreciation has sent price action towards a key level of support that has witnessed push backs in previous attempts to break lower bar one. Should price break below support, it would bring the next zone of resistance into play at roughly 101.50 – 100.50.
USD/JPY Monthly Chart: The Big Picture
Chart prepared by Richard Snow, IG
USD/JPY Strategy Going Forward:
Taking a closer look at the daily chart, there has been three successive lower highs in the lead up to the break of support at 106.00 which gained momentum as price looks to have the next level of support at 104.50 in sight.
Traders that are bearish USD/JPY will surely pay close attention to support (blue line) with much interest as a break of this level opens up to a much larger move down to the 101.50 – 100.50 range, highlighted clearly on the monthly chart (red zone).
Bulls too will watch the 104.50 area with great interest as a bounce off this level immediately brings previous support and potential resistance at 106.00 into play. Should buyers drive price higher, the most recent high at 107.50 becomes the next level of resistance.
USD/JPY Daily Chart: Price Approaching Key Support Level
Chart prepared by Richard Snow, IG
Possible Risk Events for USD and the Yen
Looking at the week ahead, on Wednesday the FOMC is set to deliver their Fed interest rate decision which is largely expected to remain unchanged. US GDP data released on Thursday will shed some light on just how dire the Coronavirus and ensuing lockdown has been on the US economy; leading into Monday where Japan release Q1 GDP growth numbers.
DailyFX Economic Calendar
USD/JPY Sentiment Data: Mixed Reading
- USD/JPY retail trader data shows 57.51% of traders are net-long with the ratio of traders long to short at 1.35 to 1
- When operating with a contrarian view with respect to IG Client Sentiment, the fact traders are net-long suggests USD/JPY prices may continue to fall.
| Change in | Longs | Shorts | OI |
| Daily | -3% | 5% | 3% |
| Weekly | 12% | 1% | 4% |
- The number of traders net-long is 8.70% higher than yesterday and 18.11% higher from last week, while the number of traders net-short is 3.10% higher than yesterday and 26.91% higher from last week.
- Positioning is more net-long than yesterday but less net-long from last week. The combination of current sentiment and recent changes gives us a further mixed USD/JPY trading bias.
--- Written by Richard Snow for DailyFX.com
Contact and follow Richard on Twitter: @RichardSnowFX
