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USD/JPY Plunges Below 110 handle, ISM Manufacturing Now in Focus

USD/JPY Plunges Below 110 handle, ISM Manufacturing Now in Focus

Oded Shimoni, Junior Currency Analyst

Talking Points:

- USD/JPY plunges and is below the 110 handle, which might open the door for further opportunities

- US ISM Manufacturing figures may firm Fed tightening bets

- GSI is a powerful big data indicator that can help you determine whether short-term trends will continue or reverse

The USD/JPY is below the 110.000 big figure (at the time this report was written) after spiking down by more than 100 pips earlier today. We look to find short term trading opportunities using the Grid Sight Index (GSI) indicator, while the US May ISM Manufacturing data later today could provide further volatility for the pair.

USD/JPY 5-Min GSI Chart: June 1, 2016

GSI is a powerful big data indicator that can give you a look at the market in a way that's never been possible before, analyzing millions of historical prices in real time. By matching events in the past, GSI describes how often the price moved in a certain direction.

You can learn more about the GSI here.

Traders may want to use the GSI indicator when price reaches specific pre-determined levels that might offer a proper way to define risk, as a common way to use GSI is to help you fade tops and bottoms, and trade breakouts.

You can use the DailyFX Support & Resistance tool to help determine key levels and volatility for a specific currency pair.

We use volatility measures as a way to better fit our strategy to market conditions. In a volatile market, as the USD/JPY today, and with US ISM manufacturing data later, breakout trades might be preferable.

USD/JPY 30-Min Chart, With SPX 500 Overlay: June 1, 2016

The USD/JPY is trading near key support at 109.500. Other levels on a move lower may be 109.300, followed by the 109.000 handle.

Resistance might be found at 109.775, followed by the 110.000 handle, and a resistance zone around 100.400.

When price reaches those levels, short term traders may use the GSI to view how prices reacted in the past given a certain momentum pattern, and see the distribution of historical outcomes in which the price reversed or continued in the same direction.

With that being said, caution may be warranted with event risks later today.

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The US ISM manufacturing data takes center stage in early trade. The ISM data is expected to print 50.4 in May, lower than the prior 50.8 April print. If the data set prints better than expected figures, with signs of firming inflation, this might boost the US Dollar on possible Fed tightening bets.

Traders may take note on the Fed Beige Book release later today as well, which could possibly have similar implication for the US Dollar.

Meanwhile, the DailyFX Speculative Sentiment Index (SSI) is showing that about 65.5% of traders are long the USD/JPY at the time of writing. The SSI is a contrarian indicator, implying further weakness ahead for the pair.

You can find more info about the DailyFX SSI indicator here

--- Written by Oded Shimoni, DailyFX Research

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