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USD/JPY Technical Analysis: A Hold Above Support Favors Liftoff

USD/JPY Technical Analysis: A Hold Above Support Favors Liftoff

Tyler Yell, CMT, Currency Strategist

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Talking Points:

-USD/JPY Technical Strategy: Caution into Resistance Favors Holding Bias

- Prior Resistance of 121.75/122 Now Formidable Support

-USD/JPY Could Retest 2015 Highs of 125.27/84 If Resistance Breaks

USD/JPY broke one level of resistance at 121.75/122 only to breakthrough and find another firm resistance level at 123.70. The NFP print on Friday gave many markets little choice but to bow down to the USD and USDJPY was no different. USDJPY now has a rising RSI to support a test of 2015 highs near 126 if the 123.50/124 level fails to hold. The thick congestion or resistance is ranging at 123.55-123.66. Validation of a near-term top would be given on a daily close back below ~122-121.75.

As long as USDJPY remains above 121.75/122 zone, it’s difficult to get short ahead of a potential Fed Hike. As of this writing, markets are pricing in a 66% chance of a Fed hike off the 0-25bp floor at the December meeting. Traders looking for profit targets on the upside due to USD strength and JPY weakness would likely focus on 123.70, a 100% Fibonacci extension from the late-August-early October-mid-October extremes and 78.6% retracement of the June/August decline. Beyond 123.70, prior price action turns at 125.27 & 125.85 provide resistance. If the USD continues to blast higher and equity markets support a weak JPY, new highs toward the 161.8% of the earlier mentioned extremes that lies at 127.20.

Traders who are looking to find a buying opportunity above support may get little pullbacks to enter at an appropriate risk: reward. The resistance mentioned above 123.55-123.66 should be watched because a break above would turn preference to the prior highs and 161.8% Fib extension. Once again, the short would only gain credibility if we see a break and close back below 122.00-121.75 where multiple chart pivots develop since Dec. ‘14. Lastly, a significant gap has emerged between USDJPY and the US-Japan 2 year yield spread arguing for higher levels on USDJPY and further calls into question a selling above key support.

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