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USD/JPY Technical Analysis: Clear ST Resistance Thanks To Ichimoku

USD/JPY Technical Analysis: Clear ST Resistance Thanks To Ichimoku

2016-02-24 22:14:00
Tyler Yell, CMT, Currency Strategist
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Talking Points:

-USD/JPY Technical Strategy: Ichimoku Conversion Line Providing Resistance at 112.95

-Japan’s 30yr Bond Yielding 0.909% Shows Sentiment Favors JPY Strength

-JPY Regains Top Spot in G10 As Brexit Fears Spark Haven Flows

USD/JPY averted a move below 111.00 on Wednesday, but traders are still keeping an eye on new 16-month lows. So far, JPY has strengthened versus all major currency peers this month. What also is impressive is data compiled by Bloomberg that shows equity market outflows in Japan are around $23 Billion YTD, one of the largest equity outflows in the world. Due to the inverse correlation of JPY Strength and Nikkei weakness, we could continue to see further JPY strength across the board with risk-aversion remaining. The risk-aversion can also be seen in the yield of the long-bond in Japan, which is below 1% at 0.909%.

What’s more, you can see a long-term chart with two key developments over 18-years. First, we failed around the same level that USD/JPY failed at in 2007 around 124/25, and second, you’ll notice that we’ve recently traded under the 12-month average. The price of USD/JPY has traded above the 12-month moving average, presently at 120.60 since October 2012. The collapse in risk sentiment could take USD/JPY lower toward its head and shoulder target of ~106 or lower.

Another thing you'll notice from the chart below ist hat we're registering the second third largest monthly price range since October 1998. The only other month with a larger USD/JPY price range than February 2016 was October 2008.

12-Month Moving Average on LT Monthly Charts

USD/JPY Technical Analysis: Clear ST Resistance Thanks To Ichimoku

Key Levels from Here

USD/JPY continues to put pressure on the bottom of a bear channel from early December as risk aversion continues to drive sentiment. Wednesday saw a late-day turnaround of risk, which propped up the price of WTI Crude Oil & Equities while bringing JPY lower. However, if risk-aversion continues, we may likely see a retest of the Feb. 11 low and a push to the 61.8% Fibo of July 2014-June 2015 at 110.54 and on towards the October30, 2014, high of 109.50.

USD/JPY Technical Analysis: Clear ST Resistance Thanks To Ichimoku

Traders who are looking for resistance levels to see into could do worse than the Conversion line on Ichimoku. The conversion line or Tenkan Sen is a 9-peiod midpoint (9-Day High + 9-Day Low / 2) and is a reliable trigger to enter trend-following trades with Ichimoku. Currently, the Conversion line on a Daily USDJ/JPY chart (H8 Chart with Daily Ichimoku Above) sits at 112.96. That level is also the 50% retracement of the 114.86-111.03 range. Further resistance may be found at 113.40, the 61.8% retracement of the same range.

T.Y.

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