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USD/JPY Technical Analysis: On A Run To Break Long-Term Resistance

USD/JPY Technical Analysis: On A Run To Break Long-Term Resistance

Tyler Yell, CMT, Currency Strategist


Talking Points:

-USD/JPY Move Higher Aligns Well With Equity March to New All-Time Highs

- 121.83 & 122.04 Proven To Be Technical Line-In-The-Sand for USDJPY

-Retest of USD/JPY 2015 Highs of 125.27/84 Is Supported If US Dollar Breaks Out

The disappointment of a non-eventful Bank of Japan to close out October had little effect on USDJPY upside. Many traders looked to the BoJ as the defining event that would determine JPY strength or weakness to the end of the year. Markets though, are rarely forced into a corner such that a binary decision of yes/ no would determine its fate. Instead, where the Bank of Japan dropped the ball of inducing USDJPY higher, the Federal Open Market Committee of the Federal Reserve picked it up, and they’ve continue to run with charge. The Fed has discussed rising rates in December with the support of economic data, which has caused the 2Yr US Treasury Yield to push towards 80bp. The 2yr US Treasury Yield has been acutely correlated to USDJPY this year such that a charge higher or lower in the 2yr will almost certainly tell you the weekly directional pull of the USDJPY.

Now, the strength in the US Dollar is setting up to take USDJPY towards key intra-trend resistance of 121.75/80, which incorporates the August 28th high, the 100-dma, the 61.8% Fibonacci resistance of the August 12th-24th range, and the December ’14 high. Price action ahead of NFP is typically quiet but fighting this move higher into noted resistance seems unadvisable. The real story will likely be whether or not an in-line NFP or beat causes us to see a weekly close above the resistance line. Currently, the first level of support in focus is the 120.24, the November opening range low.

A break above 121.75/80 would turn immediate focus to the Weekly R2 Pivot (classic calculation) of 122.18. For traders that do not mind holding overnight risk, the next technical level is the 78.6% Fibonacci resistance level of the May high to the August 24th low at 123.75. An aggressive move higher would likely mean new highs, but firm swing targets would be the August high of 125.27 and then 125.85, the 2015 high. Given the rise in equities, the confident Fed into year end, the present method of derailing this move appears to be NFP. The less obvious derailment would come from a larger macro risk-off event, which presently is not favored. T.Y.


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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.