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USD/JPY Technical Analysis: Shaken, Not Stirred Above 122

USD/JPY Technical Analysis: Shaken, Not Stirred Above 122

Tyler Yell, CMT, Currency Strategist


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Talking Points:

-USD/JPY Technical Strategy: USDJPY Continues to Hold Key Support at 122, Favoring Upside

-Weekly High at 123.74 Will Be Short-Term Resistance

-JPY Continues to Lack Environment to Surge

USDJPY followed suit with the rest of G10 FX by moving against the US Dollar in the day after the Federal Reserve Minutes released Wednesday afternoon. The consensus was that the market came up disappointed by the Federal Reserve’s October meeting minutes that may have highlighted that the December rate hike was less likely as well as sequential hikes from the December 16th meeting. Now, the question has gone from, “will they go?” to “how high will they go?” followed by, “how fast will they hike?” Other correlated markets to USDJPY have been shaking as well like the SPX500. However, one key theme remains. The Fed is looking to tighten as the others are contemplating further loosening and the Key Markets that revolve around the US Dollar and JPY have yet to break key support or key resistance, which would favor staying the technical course of focusing higher.

Specifically, the key levels on USDJPY remain the zone of 121.75-122. There are multiple technical levels that align here, and an inability to break below this level on a daily close basis would make calling for a drop premature or hopeful, but not based on evidence. As long as we stay above the 121.75.122 price support floor, attention should be paid to the weekly higher of 123.74. A break above this short-term resistance may indicate that price is ready to make a move toward the August 12th high of 125.25, which marks the day the Yuan was devalued by the People Bank of China, and the markets went into a 2-week tailspin before gaining ground.

While a lift-and-pause approach from the Fed could take hold in 2016 if growth remains tepid, the dash for dollars may still lift USDJPY. Additionally, as long as support holds, we can look to correlated markets like the SPX500 (higher SPX500 tends to align with higher USDJPY) to support the argument for higher USDJPY. The volatility on USDJPY has been less than its G10 counterparts. However, the technical structure favors a consistent move higher toward new YTD highs above 125.85 if we can muster a daily close above 123.74.

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