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Talking Points:

  • USD/JPY has slipped on suspicions that the Bank of Japan may be changing heart
  • However, suspicions these remain for the moment
  • The charts, however suggest there could be further falls

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The Japanese Yen has found a little fundamental strength to take it into 2018, with USD/JPY sliding for a couple of days.

The apparent reason for this is a little esoteric. The Bank of Japan scaled back very modestly its regular bond buying purchases on Monday. Some in the market clearly chose to interpret as a sort of covert policy tightening, or a signal thereof, even if it need necessarily be no such thing.

Publicly the Bank of Japan remains committed to all its stimulus measures –which includes buying an annual JPY80 trillion (US$720 billion) from the market- until inflation rises sustainably, something it shows little sign of doing.

Whatever is actually happening, the Yen has caught a bid. But what do the charts suggest?

Well, the USD/JPY daily candlestick may be offering the move some support. What we could see here is a consolidative, pennant formation. If so, the likelihood is that the impulse which preceded the formation will resume once it plays out. As we can see from the chart below that may well mean that USD/JPY continues to fall. The move just before the pennant started was its slide from the highs of November 6, in the 114.65 region.

Japanese Yen Technical Analysis: Pennant Backs Up USD/JPY Weakness

One caveat might be that the pennant’s lower-bound-uptrend lacks validation points. That is a fair argument, should you care to make it but, all the same, I think the formation bears watching.

As far as possible support levels go, USD/JPY has already breached the first Fibonacci retracement of its rise from the lows of September 7 to the high of November 6. It did that when it fell through 112.98. The next retracement level lurks at 111.90 or so. It seems likely that the pennant will have resolved itself and proved a reasonably successful indicator should that level be hit though.

The newly invigorated Yen is gaining against a range of majors, with AUD/JPY no exception.

Japanese Yen Technical Analysis: Pennant Backs Up USD/JPY Weakness

In the last couple of days that cross has broken below a significant and quite emphatic upward channel which had been in place since December 7. However, the Australian Dollar bowed out of the old year doing well against a plethora of currencies, and notably the US Dollar. A consolidative pause was arguably overdue and may now be with us. If the Yen continues to gain against the US Dollar then it may also be set fairer against the Aussie, but it may be wise to see how AUD/JPY deals with retracement support at 0.8738 before worrying about a deeper fall.

--- Written by David Cottle, DailyFX Research

Contact and follow David on Twitter:@DavidCottleFX