Japanese Yen, JPY, USD/JPY Price Analysis:
- USD/JPY was on a smooth short-side trend until the latter-portion of this week brought a long-term support zone into the mix.
- Bigger picture, USD/JPY presents breakdown potential as horizontal support combined with lower-highs may soon give way to persistent selling pressure.
- Given the fireworks from February-March, it appears that the short-side theme in USD/JPY would align with another round or a revival of risk aversion.
USD/JPY: Reading Between the Lines
Despite the fireworks in financial markets that have shown so visibly over the past few months, USD/JPY has of recent been suspiciously quiet, especially when taking a longer-term look at the matter. Getting more granular, there are some trends on shorter-term charts that may have seemed workable but, focusing on net price action, USD/JPY has been grinding in a back-and-forth manner even as the world has went off of the proverbial rails over the past three months.
USD/JPY Monthly Price Chart
Chart prepared by James Stanley; USD/JPY on Tradingview
Taking a shorter-term look at the matter produces a far different result, particularly in the months of February and March which saw strong trends in either direction. But, given that monthly price action closed very near where it finished, this is merely presented as a long-legged doji for the March print on the monthly chart of USD/JPY. But the manner that these moves priced-in may offer some element of insight for strategy parameters moving forward.
As the world shuttered with fear as the coronavirus was getting priced in, USD/JPY tanked by more than 1,000 pips from the February high to the March 9th low. This correlates with the sell-off in stocks and the overall push of risk aversion; and when extrapolated to the Yen, this can make sense as the carry trade in USD/JPY faced aggressive unwind as the world prepared for rougher conditions ahead.
USD/JPY bottomed on March 9th, which aligns with a short-term top in Gold, just before the yellow metal sold off by almost 15% in less than two weeks.
USD/JPY Daily Price Chart: Feb-March Mayhem, April-May Slumber
Chart prepared by James Stanley; USD/JPY on Tradingview
As USD strength picked up on March 9th, both Gold and the Yen gave up value to a surging USD. Stocks were continuing to tank, so this highlights the possibility of a cash crunch in the system after an emergency FOMC announcement failed to settle market participants’ nerves. This helped USD/JPY to recover the bulk of those prior losses; but as the risk-on trade came back into the spotlight in late-March, that correlation with USD/JPY seemed to weaken and price action in the pair has been mean-reverting for much of the time since.
USD/JPY Strategy Parameters
At this point, USD/JPY may seem more opportunistic from a longer-term perspective, waiting for a deeper breakdown in the pair as a well-worn zone of support faces continued tests. Combine this with the general proclivity for lower-highs that’s been showing since 2015, and that bearish argument can become perhaps even more attractive.
But, given recent performance in conjunction with related drivers, it appears that for that scenario to take place, we’ll need another round of nasty risk aversion, similar to what had shown in late-February/early-March as carry trade unwind saw the pair give up more than 1,000 pips in short-order. And, of course, its not impossible to deduce a number of possible drivers that may bring this scenario into the fray; particularly given the recent resurgence in fear around coronavirus as early-to-reopen states face spikes in infections.
On a shorter-term basis, the price of 106.65 seems notable. This is the 38.2% Fibonacci retracement of the 2012-2015 major move in the pair, and this price came into play this week to help hold the lows in USD/JPY. After a 100+ pip bounce on Friday, short-term resistance around the 108.00 handle can come back into the equation, as this is the 61.8% retracement of the February-March move and had previously helped to set resistance a few weeks ago.
USD/JPY Four-Hour Price Chart
Chart prepared by James Stanley; USD/JPY on Tradingview
--- Written by James Stanley, Strategist for DailyFX.com
Contact and follow James on Twitter: @JStanleyFX
