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USD/JPY Technical Analysis: Black Monday Close As Key Support before Breakdown

USD/JPY Technical Analysis: Black Monday Close As Key Support before Breakdown

Tyler Yell, CMT, Currency Strategist

Talking Points:

  • USD/JPY Technical Strategy: Play Range Short-Term Until Breakdown Or Breakout
  • Rallies Are Likely To Be Sold Near 120.50/60 Until Proven Wrong
  • Swing Trade Looks Unattractive From A Probability Perspective

USDJPY is drifting lower into the bottom of its triangulating range toward the 119/118.50 area. Prices are working on their 15ths consecutive trading day between the range that that was cemented on Black Monday of August 24th with a gapped open of 122.02 though the close of that same day of 118.40. On a weekly chart, this provides us a double-inside bar, currently triple-inside but not expected to hold, that favors a strong coil releasing move when the range is broken with a weekly close either above 122.02 or below 118.40.

Recently, we saw USDJPY move below the Ichimoku conversion line that functioned as a support around 119.9 yesterday. Further, weekly cloud support along with early 2015 support is centered on 116.50, which is also near the Black Monday low. A break below 118.40 could see that confluence of supports soon tested. Conversely, the first daily close above 122.02 would turn focus back to 124/125.

Recently, we made the claim that the absence of a defined bearish reversal signal means taking up the short side is probably premature. This remains the case but looking to the correlated markets of USDJPY, few seem to be on board to take USDJPY higher with BoJ intervention, which isn’t rumored / expected until late October. The correlated markets are the SPX500, USDZAR, and US Gov’t Yields. Looking purely at the technical picture, a break lower appears to the more probable view and a daily break below 118.40, say on Thursday would turn focus toward 116.50 in the upcoming weeks.

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