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Talking Points
- Rebounds ahead of key support pivot
- Range break looming?
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USD/JPY: Range Break Looming?
USD/JPY briefly broke under the August 24th closing low yesterday before screaming higher into the close to actually finish up on the day. Was that just another range low or an initial downside test before a more important push lower? Energy is obviously building in the exchange rate which indicates that an important directional move is looming. However, these severe contractions in volatility are often chalk full of false moves and misdirection before the trend reveals itself and that is what can make these types of situations so difficult.
That all said, cyclical relationships suggest the timing is about right for a break from the range. As the latest foray lower actually started on the 61.8% retracement in time of the June - August decline. Because of this I have been leaning negative on USD/JPY, but the monster support around 117.80/90 (median line from the year’s high, 38% retracement from October 2014 – June 2015 & trendline connecting the October 2014 & August 2015 lows) really needs to give way to get excited about anything meaningful starting up on the downside. A move back through this week’s high around 120.25 would suggest range dynamics are taking over again, but only traction over 121.30 seriously raises the possibility of an upside break from the range. Other important timing relationships are also eyed late next week and the start of the week of October 26th.
--- Written by Kristian Kerr, Senior Currency Strategist for DailyFX.com
To contact Kristian, e-mail instructor@dailyfx.com. Follow me on Twitter @KKerrFX
