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USD/JPY Technical Analysis: Time for a Bounce?

USD/JPY Technical Analysis: Time for a Bounce?

Tyler Yell, CMT, Currency Strategist

Interested In Learning the Traits of FXCM’s Successful Traders? If So, Click Here

Talking Points:

-USD/JPY Technical Strategy: Pattern Support Favors Buying the USD/JPY Dip

-Channel Support & RSI Oversold Reading Makes Selling a Difficult Move

-Seasonal Tendencies Favor USD Strength for January, Which Could Support USD/JPY

Do you know what was the top performing G10 Currency against the US Dollar in 2015? The JPY was the strongest by edging out the US Dollar for a 0.23% gain on the Year. Today, JPY was the strongest G10 currency, raising over 1% against the US Dollar giving the JPY its strongest read against the G10 in 11 weeks. However, looking at the chart, the downside feel limited with support focused currently at the 118.05 October 15th low and the 78.6% Fibonacci Support of the mid-August to mid-Novemberconsolidation.

If traders have learned one lesson when trading USD/JPY over the four years, it’s that chasing the downside is expensive and tricky. While USD/JPY downside appears to be under severe pressure, I would argue that downside in JPY crosses best saved for weaker currencies than the US Dollar such as the New Zealand Dollar or British Pound. Typically, the strength of the JPY is built upon the foundation of global market risk aversion, which develops and spikes quickly before fear subsides. One quantitative measure of today’s extreme move is that today’s price range relative to the ATR (5) was ~250% showing an outsized move.

An important word of note, USD-JPY has shown a propensity to triangulate. For shorter-term traders who are keen on daily targets and invalidation levels, this may be no problem. However, for swing traders and multi-month triangle pattern can be frustrating and worth avoiding or turning to a shorter-term trading plan. Should a triangle be playing out again, support should hold at the 117.71/118.05 while the upsideis near the 100-DMA at 121.12 up to the 61.8% retracement of the November-January range near 121.75.

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

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