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USD/JPY Technical Analysis: 3-Month Highs Turns Focus on 108

USD/JPY Technical Analysis: 3-Month Highs Turns Focus on 108

Tyler Yell, CMT, Currency Strategist


Talking Points:

  • USD/JPY Technical Strategy: bullish break > structural resistance (104.32) encouraging
  • Dollar Driving all markets as runaway move continues
  • JPY weakness is becoming a predominant theme as CNH also continues to depreciate

Access Our Free Q4 Trading Guides That Focus On Tradeable Themes Here

USD/JPY price traded at 3-month highs on Tuesday morning as the Dollar showed strength across the board and most notably against the British Pound that fell to post-crash lows and USD/CHF almost hit parity. The strong move came as probabilities of a December rate hike by the FOMC for the December 14 Fed meeting rose to 73%.

Market participants look to be considering the view that a rate hike by the Fed would allow both the ECB & and the Bank of Japan some breathing room to ease policy further or introduce new forms of easing fiscal policy. EUR & JPY have fallen aggressively against the USD in October.

Another component worth watching that we’ve consistently pointed our readers toward is the rising yields (i.e. risk) on commercial paper and LIBOR. A handful of investment banks believe this could soon rise from current levels of 0.8867% that account for an upcoming hike to above 1.0000%. A move above 1.0000% would indicator either a more aggressive Fed than expected or tightening financial conditionals, either of which could support the US Dollar.

Given the similarities in currency focus, we have also discussed how the Chinese Yuan, USD/CNH continues to fall against USD. The drop continues to validate the trend of a stronger USD and weaker CNH. The weakening took the Yuan near record lows on the back of weak exports according to Bloomberg data.

The significance of the CNY move near a record low is what it may encourage Japan to do that would also weaken the JPY (i.e. yield curve control + fiscal stimulus), and therefore encourage an impressive set-up for a long USD/JPY trade (not a trade recommendation.)

H4 USD/JPY Chart: Possible Double Bottom Targeting 108

Chart Created by Tyler Yell, CMT, Courtesy of TradingView

The technical work on USD/JPY is compelling as we’ve broken above a key level at 104.32 and have recently traded at 3-month highs. A move higher in USD/JPY tends to go hand-in-hand with a well-functioning global economy and risk sentiment, which could be developing now as well.

Recommended Reading: USD/JPY Breakout Attempt Foreshadowing ’Risk’ Rally?

Recently, we saw the Nasdaq 100 hit an intra-day record high, which is a leading indicator of growth stocks continue to go bid. The cross-market analysis seems to align with the investment flow that could keep USD/JPY.

On the chart above, we’ve looked at JPY breaking down as an indication that an Elliott Wave signal could be giving way to a move higher. While USD/JPY consolidates, we’ll continue to favor the upside if price holds above 102.70. The upside that we’re favoring is the double-bottom (mid-August & late-September lows) that targets the 100% extension of the range at 108.557.

Another key indicator at the ~108 zone is the 200-WMA that sits at 108.18. This long-term moving average (~4-Years) has been very influential on USD/JPY direction since 2007.

Shorter-Term USD/JPY Technical Levels: October 25, 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.

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