Talking Points:

  • USJ/JPY Technical Strategy: Bullish Break > Ichimoku Cloud turns focus higher
  • Bank of Japan chooses “yield curve control,” they may have changed the game of QE
  • USD/JPY > 100-DMA (103.67), all focus now on 104.32 (Triangle Invalidation)

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USD/JPY has been called the trend that has killed a few hedge funds. The theme seemed perfect for a rise to 150 from 125 as the Federal Reserve was expecting to raise rates persistently while the Bank of Japan reached in their QE toolbox for more ways to weaken the JPY. However, from June to June, the price of USD/JPY fell ~21% on persistent JPY strength.

On Thursday, the price of USD/JPY broke above two key long-term trend indicators, which will be explained in more detail below. However, persistent and painful trends like Oil Lower and USD/JPY lower could be reversing if a few key resistance points could be overtaken.

We would still recommend being mindful of the subtle shift in attitude toward the implications of shifting policy strategy toward “yield curve control.” If the market sees YCC as a form of effective Helicopter Money that has been discussed as a possible new frontier of monetary easing to go from recession recovery (QE’s focus) to fostering growth, we could see an aggressive amount of JPY weakness from institutions.

USD/JPY Accelerates Through Ichimoku Cloud & 100-DMA

USD/JPY Technical Analysis: First 2016 Move Above Ichimoku Cloud

Looking above, you can see what appears to be a very clear downtrend as highlighted by Andrew’s Pitchfork (Red). The long-term trend shows the path of least resistance, but it is worth being watchful for signs of a trend change, which we may have seen this week. The move above the 100-DMA (103.67) and Ichimoku Cloud are firm green shoots of a bullish development.

When looking for a reversal of a year-plus-long trend, it’s helpful to take a page out of Bayesian probability that looks for moments of proof of the pending hypothesis that the trend is turning.

Some traders have looked at the move in USD/JPY post-Brexit as a triangle. That’s a valid view, but a break above 104.32 would invalidate such a pattern and could add to the building evidence of a pending bullish breakout.

On the pitchfork above, you can see that there are two key levels of resistance above the spot price of USD/JPY. The median line itself, which has a leading slope in the direction of the trend has been surmounted at 102.71. Now, the middle line between the upper parallel and the median line sits at 105, and the upper parallel line comes at a strong confluence of technical resistance. The upper median line lands in-between 107/108.5 and aligns with the 200-DMA and the 38.2% retracement of the November-July price range.

In previous market notes, we’ve discussed how Ichimoku Cloud would be one of the first long-term indicators to register a Bullish signal on a break and close above 103.20 on the daily chart. We seem to have that, but now the focus will be on 104.32 to see if the corrective triangle pattern is invalidated.

Another thing to note over the coming trading days is the opening range of October. Opening Range reversals are commonplace in strong trends and should be indicative of trend continuation. In the case of October, we’d have an opening range reversal if the price of USD/JPY broke below 101.17 (Monday’s low) in the second week of October and continued lower. Given the significant event risk of Non-Farm Payroll, the opening range low of 101.17 should remain on watch as an invalidation of the recent excitement.

However, a continuation of the resistance levels mentioned above breaking and we could see traders start to push the market higher in fear of missing out on the next USD/JPY long trade.

Shorter-Term USD/JPY Technical Levels: October 6, 2016

For those interested in shorter-term levels of focus than the ones above, these levels signal important potential pivot levels over the next 48-hours.

USD/JPY Technical Analysis: First 2016 Move Above Ichimoku Cloud

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